 All right, so first, thank you so much to the conference organizers for for having me. It's great, obviously, audience to present the paper like this. It's especially nice to see a lot of familiar faces. I would have preferred to see them in person, but maybe next year. So this paper is about competition in product markets in the presence of crypto tokens and smart contracts. This is the third theory paper in the same session. I'm going to try to make it very easy and not show any equations just some pictures. For an audience like this, I probably should skip on the overview of what crypto tokens and smart contracts are. I'm going to go straight to the to the motivation. And I'm going to use an example that is used very frequently in this literature, that of Filecoin. I'm also going to have some more examples that that he mentioned in his presentation earlier. The fact that there is, you know, that good examples are scarce, you know, maybe indicates that, you know, that the whole industry still infancy, but, you know, that makes it interesting to explore. So Filecoin was basically intended to be a platform for decentralized digital storage where users can rent out their capacity and in return they would receive FIL tokens. The idea basically is to enter an existing established market with existing storage platform. There are some decentralized ones such as CEO or storage, but there are, you know, bigger, more well-known players, you know, such as Dropbox or Onebox or Google Drive, right? And this is basically the market where Filecoin was expected or is expecting to compete, right? So what this paper does is basically looks at the cost and the benefits of issuing cryptographic tokens and using smart contracts in a setting where a new entrant, an entrepreneurial venture, expects to compete in a market that already exists and where there are some incumbents. It's going to be a very simple model of competition between two firms, so the entrant and the incumbent. An important entrant and the model is going to be switching costs, right? So the idea is that if I'm using Dropbox right now, it's going to take some effort and cost to switch to a different platform, you know, such as Filecoin, right? So, you know, part of the model is going to be the incumbent kind of thinking about how to attach the customers, you know, that will be competing with the entrant later on. So the crux model is that it shows that in addition to the usual kind of benefits of initial coin offerings at the financing stage, right? So there's a big later return which I'm going to mention in a minute that looks at the financing of, you know, using tokens. There are also benefits at the product market competition stage, right? And those benefits, as I'm going to try to show, are going to be due to the ability of tokens and smart contracts to commit the entrant to certain out-of-market strategies that is going to increase its equilibrium value. One of the implications of this is going to be on the pricing of goods and services, right? And in many cases, the use of scripted tokens and smart contracts are actually going to lead to higher equilibrium prices for the consumers. I'm going to try to touch upon this point at the very end. All right, so this paper fits into three broad types of literature. The first one is on the cost of benefits of issuing tokens. This is quite large in growing literature. Two of the today's presenters are, you know, very important parts of this literature. What I contribute here or try to contribute is that this is the first model to use multi-firm setting, right? All of the other papers are basically about optimization from the standpoint of one firm. And this is also, I think, the first model to look at the non-financing related benefit of scripted tokens. There are some other papers, so I'm not sure whether the first is a good description here. It's one of the first. There is also literature on the general benefits of blockchain technology and smart contracts. I try to add to this literature by thinking about how tokens and smart contracts can lead to commitment to future prices, output prices, and how that could be beneficial for firms using scripted tokens and smart contracts. And then there is an old literature from the eighties and nineties about competition and switching costs for obvious reasons. This literature did not consider scripted tokens as part of the available strategies. And I'm trying to do this here. It contributes a little bit to that literature as well. I'm going to introduce first a very simple benchmark model without tokens so that I can quickly transition into what happens when I introduce tokens and smart contracts to see exactly what the effects are. So there are two firms, the incumbent that I call I, and the entrant called E. They're competing under the current competition with homogeneous goods, so they produce the same thing basically. The incumbent operates for two periods, and the entrant enters in the second period. I assume zero entry cost because deterring entry is not the point of this paper. Basically, the point is to try to see what happens, what are the optimal pricing strategies once the entry had occurred. For the same reason, I abstract from production costs because I want to focus exclusively on pricing and assume that production costs are zero. The incumbent maximizes the sum of its expected profits over the two periods, and the decision variable is going to be pricing its product in the first and the second period. I in the second period stands for incumbent, obviously, because there was also the entrant. I ignore this county here, but that doesn't play any role. The entrant only plays in the second period, so he tries to maximize expected profit by also setting its price. Now, to the demand side of the market, in the first period, there are massive consumers, I call it Q1. They have different valuations of the incumbent's technology. Their valuations are distributed, in this case, uniformly between zero and one. This is just for simplicity. It doesn't really make a difference. And we get a super simple equation for the demand or equilibrium quantity in the first period conditional on the price that the incumbent has set in the first period for the output. In the second period, the massive consumers grow. There is some growth rate of g that is equal or higher than zero. Now, importantly, in the second period, the firms, the incumbent and the entrant, they set their product prices simultaneously and non-cooperatively, and cannot change them after that. The usual argument is menu cost. So once the menu is printed, it's hard or costly to change the price in the menu. But this argument has been used obviously outside of the restaurant industry as well. So we assume that once prices are set, they're set in stone. There are two types of customers in the second period. The first one is the so-called detached customers. So there is a massive customers that bought from the incumbent in the first period. And those are the ones that are going to stay with the incumbent. So if I use Dropbox in the first period, I assume that I'm attached to Dropbox, I'm not going to use Filecoin. This is a restrictive assumption. It's possible to solve the model with less than infinite switching costs. It's just a little bit more difficult algebraically, but the logic is still the same. And then there is the new customers, those that didn't buy from the incumbent in the first period, and are free to choose either Dropbox or Filecoin, depending on what maximizes their utility best. Both type of customers have, again, different valuations. They're also distributed uniformly from 0 and 1. And as I said, detached customers have large switching costs, so it can only buy from the incumbent. The new customers buy from the firm that gives the better price, because basically the products are homogeneous. All right. In a setting like this, it's a known result. It's not mine. There is no pure strategy national equilibrium, because everybody tries to underpriced the other guy. And then when the price is too low, the price goes back to being very high. There is a mixed strategy national equilibrium that I'm trying to characterize here. And the result basically is the following. You're going to show a picture. The upper picture describes the incumbents, profits, quantities, and prices in the first period. And the lower picture describes the entrance and incumbents' profits in the second period. So if you remember your Econ 101 class, if you have a monopolistic market in one period, basically we should observe a square representing a profit. The price should be one-half, and the quantity should be one-half of the highest possible quantity as well. This is not what's happening here. The price is lower. The quantity is higher. The reason is that incumbent has an incentive to basically attach some of the customers to the second period in order for it to be able to exploit them in the second period, which he does here. So the equilibrium is in the second period a mixed strategy equilibrium, but the expected profits are represented by this picture here. They're the same as if the incumbent would charge the monopolistic price in this case of one-half to the attached customers and basically mill them completely. The entrance profits are characterized by this upper bound of this green rectangle, which basically is the price below which the incumbent is not willing to go because he has the fallback option to charge monopolistic price to attached customers and not compete for the unattached one. Basically here just remember those rectangle areas. The green one is the entrance profit and the blue ones are the incumbent's profits in the first and second period. Now let's get to the interesting part. What happens if the entrant decides to issue crypto tokens? Let's explain how the model is going to work. Prior to the product market competition stage, the entrant issues theta crypto tokens. As usual in those types of models and also in practice, the entrant commits to accept those tokens as the sole means of payment for its product. Importantly, it quotes the price of its product in units of tokens that I'm going to develop by small theta and sell the tokens to interest customers for the price that is going to be determined in equilibrium. This is basically the main take away from the paper. What happens is that the fact that the entrant commits to prices that the product includes the tokens basically introduces another stage of the game where potential consumers are bidding for those tokens in order to later use them in order to buy the product. What it does is it transforms a simultaneous price competition into a sequential price competition where both firms set their prices simultaneously but the entrant sets the price in tokens. After that, there has to be a stage where those tokens are priced in the market and that's what transforms the competition into sequential. The entrant is always going to be the second mover relative to the income. In equilibrium, the price of the token is basically going to be determined by the price of the incumbents' goods in dollars relative to the price in tokens of the entrant. If Dropbox charges $100 a year for its service and Filecoin would charge five units of token for its service and if you assume that the services are identical then basically I'm going to be willing to pay up to $20 per one unit of Filecoin and nobody would be willing to pay more for it. Now there are a few implicit assumptions here that are quite restrictive that the price is quoted in the entrant's proprietary token that's super important and that's the reason why this whole idea cannot work with the currency because dollars are not specific to this project or to the product. We need to assume that there is a liquid market for the entrant's token and that the price is correct. So there are no speculators bias in the price away from the equilibrium price. What's going to happen in equilibrium is very simple. The incumbent now knows that whatever price he charges for his product in the second period, the equilibrium fiat currency equivalent price of the entrant is always going to be low because the market forces are going to adjust the price of the token such that the fiat currency equivalent price of the entrant's product is going to be just below the price of the incumbent. So in equilibrium nothing much happens to the incumbent. So this blue rectangle areas are the same as before. Now it's a pure strategic equilibrium so it's not an expected profit but a realized profit but from the expectation standpoint the incumbent is exactly as well off with the entrant price in crypto than without. What is different here is the profit of the entrant. So the pink area here represents the profit without pricing in crypto that showed in the previous case. The green rectangular area is the profit of the entrant under price in crypto. The reason basically is very simple. The incumbent has no incentive to lower the price below the monopoly price because the incumbent knows that he will always be bitten by the entrant in terms of the price. So all of the unattached customers are always going to go to the entrant and only the attached customers are those that the incumbent can sell to. If that's the case the incumbent basically ignores the unattached customers in equilibrium and just sets monopoly price to the attached customers and that obviously benefits the entrant because the green area is larger than the pink one. So that's basically the crux of the benefit of pricing in crypto. Now if you think that this is just a theoretical possibility there are some real world examples of ventures trying to do this. So I mentioned Filecoin before. There are a couple of platforms that are basically provided decentralized marketplace for performing computations. Iexec is a French one that is fully operational. Golem is sort of half operational but both of those state explicitly the price their services in proprietary tokens. And Yeh also mentioned this Brave which is the entrant browser that pays users for watching ads. There the pricing is also in units of native tokens. So it's beginning to be done in practice not very widely but it seems like some terms of relief realize some of the advantages of pricing in crypto. I don't have much time so let me just briefly kind of touch upon the usefulness of smart contracts in this setting. As I'll argue in a second smart contracts can be a way to commit to future output prices by the entrant. Now price commitment in general has two issues. First of all in price commitment in fiat currency is typically not credible and time inconsistent. There are many papers showing this. Now I also show in my paper that even if it was possible to make it time consistent and credible it would not be a good idea for the entrant to commit to future prices that its equilibrium profit is going to be low. Now what I'm going to try to show is that committing to prices in crypto currency using smart contracts might actually benefit the entrant. So let's make an additional assumption. Let's assume that in addition to issue in crypto tokens the entrant can commit to future price in units of token. What it does is the following. So let's say that the entrant has issued 1000 tokens and it says that the price in crypto tokens of its product is going to be 10 tokens and then basically sets a defect to quantity constraint or capacity constraint on the entrant. The entrant cannot sell more than 1000 divided by 10 which is 100 products. Why would the entrant want to do it? Well, basically limiting itself in the second period guarantees some customer base to the incumbent in the second period regardless of whether the incumbent kind of worked to build this attached customer base or not. And so it mitigates the incumbent incentive to increase the massive attached customers. That means that the incumbent can basically focus on generating monopoly profits in the first period. So getting higher profits in the first period and as a result might compromise on the profit in the second period and this extra profit might go to the entrant. I'm going to talk about two types of a smart contract. So the commitment can be unconditional or conditional on the product price of the incumbent. And this is like a derivative. It's really easy to implement. The price of the incumbent product is not something that's on chain, but one can think of using oracles to basically make sure that the commitment can be implemented. Let me show you briefly what's going to happen with unconditional commitment. As I told you, the incumbent basically focuses on getting the monopoly profits in the first period. So that's why the incumbents profits are different in the upper figure than before. The incumbent now becomes the residual claimant on the consumers in the second period. So the entrant here in the second period is to the left and the incumbent is to the right. And you think that entrant would benefit for the reasons that I mentioned. The only problem is that because the incumbent had the residual claimant he has incentives now to lower the price. And that's basically why the price of the incumbent here that's represented by the blue rectangle is lower than the monopoly price. And we know that the entrant's price is going to be always lower, slightly lower in equilibrium with the incumbent price. And basically the entrant here moves from the pink rectangle to a green rectangle, whose area is smaller. So the equilibrium profit goes down. The problem is exactly the incumbent's incentives to alter its pricing strategy in the second period. So what can the entrant do? Well, the entrant can use a conditional smart content. Basically say, well, if the incumbent charges a monopolistic price of one half in the second period, which is good for everybody, then I'm going to get the price in tokens of my product and going to be such that it imposes the profit constraint. If the incumbent deviates from this pricing, well, then all hell breaks lose. I'm going to price the product with a very low price in tokens, basically eliminating the capacity constraints, and we're back to square one. What's going to happen is the following. It's the same picture as before, but now the equilibrium price that the incumbent wants to charge for its product in the second period is one half. The incumbent gets slightly higher profits than before, combining the first and the second period. The entrant, because the substitution between the first and the second period, is able to get this wedge in the middle, which is the extra profit of the entrant due to commitment to future prices in smart contracts or above the benefit that the entrant gets from pricing in crypto tokens. So there are basically two benefits here. The first one is setting this extra stage in computation that's the benefit of pricing in crypto, and then the pricing of committing to future price in crypto is basically because of this transition or substitution between first and second period profits of the incumbent that goes to the entrant and equilibrium. I also analyzed a case where the incumbent also issues crypto tokens. So basically, given that issuing crypto tokens is so nice, the incumbent might also want to do it, and then I can show that if the growth in the market is high enough, then both firms have incentives to issue tokens and price their products in units of crypto. Let me very briefly recap what we've done here. This is one of the first papers to examine the effect of issuing crypto tokens in a competitive setting. So that's a contribution. And as I mentioned, there are two advantages for the entrant. I'm not going to repeat myself. Now, what's important here is that this paper belongs to a very small emerging literature that looks at benefits of issuing crypto tokens at the utility stage. For product pricing in particular, as opposed to the benefits as security tokens in the pre-RND financing stage. And you can see from the pictures, this might not be good for consumers. And despite the fact that SEC might see the benefits of using utility tokens, the antitrust authorities might actually be concerned with the effects of using growth tokens for price. So that's all I have. Thank you so much.