IDEAS home Printed from https://ideas.repec.org/p/bcl/bclwop/bclwp132.html
   My bibliography  Save this paper

Why do social networks introduce virtual currencies?

Author

Listed:
  • Gaston Giordana

    ()

  • Paolo Guarda

    ()

Abstract

This paper models how internet platforms decide whether to introduce virtual currencies. Since platforms operate two-sided markets, virtual currencies may attract users who buy goods/services as well as external firms who accept virtual currency as payment. We find that platform incentives to introduce virtual currencies depend on the distribution of wages across the population of users as well as the distribution of preferences for online activities ("digital" preferences). We use Luxembourg data from the EU Survey on Information and Communication Technologies to test model predictions on user time allocation. In particular, we identify various individual socio-economic characteristics linked to time spent on social networks. Then, we use the user net income distribution (conditional on digital preferences) to evaluate conditions determining the platform’s choice of virtual currency design.

Suggested Citation

  • Gaston Giordana & Paolo Guarda, 2019. "Why do social networks introduce virtual currencies?," BCL working papers 132, Central Bank of Luxembourg.
  • Handle: RePEc:bcl:bclwop:bclwp132
    as

    Download full text from publisher

    File URL: http://www.bcl.lu/en/publications/Working-papers/132/BCLWP132.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. repec:dau:papers:123456789/5065 is not listed on IDEAS
    2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    3. Mohammad Davoodalhosseini & Francisco Rivadeneyra, 2018. "A Policy Framework for E-Money: A Report on Bank of Canada Research," Discussion Papers 18-5, Bank of Canada.
    4. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    5. A. Stevens, 2017. "Digital currencies : Threats and opportunities for monetary policy," Economic Review, National Bank of Belgium, issue i, pages 79-92, June.
    6. Florence Jusot & Sandy Tubeuf & Alain Trannoy, 2013. "Circumstances And Efforts: How Important Is Their Correlation For The Measurement Of Inequality Of Opportunity In Health?," Health Economics, John Wiley & Sons, Ltd., vol. 22(12), pages 1470-1495, December.
    7. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
    8. Simon P. Anderson & Joshua S. Gans, 2011. "Platform Siphoning: Ad-Avoidance and Media Content," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 1-34, November.
    9. Stephen P. Jenkins, 2009. "Distributionally‐Sensitive Inequality Indices And The Gb2 Income Distribution," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 392-398, June.
    10. Ben Fung & Hanna Halaburda, 2014. "Understanding Platform-Based Digital Currencies," Bank of Canada Review, Bank of Canada, vol. 2014(Spring), pages 12-20.
    11. Maria Demertzis & Guntram B. Wolff, 2018. "The economic potential and risks of crypto assets: is a regulatory framework needed?," Policy Contributions 27194, Bruegel.
    12. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
    13. Benjamin Shiller & Joel Waldfogel & Johnny Ryan, 2018. "The effect of ad blocking on website traffic and quality," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 43-63, March.
    14. Joseph Deutsch & María Noel Pi Alperin & Jacques Silber, 2018. "Using the Shapley Decomposition to Disentangle the Impact of Circumstances and Efforts on Health Inequality," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(2), pages 523-543, July.
    15. Grégory Claeys & Maria Demertzis & Konstantinos Efstathiou, 2018. "Cryptocurrencies and monetary policy," Policy Contributions 26557, Bruegel.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Private virtual currencies; social networks; retail payments;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcl:bclwop:bclwp132. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://www.bcl.lu/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.