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Can We Predict the Winner in a Market with Network Effects? Competition in Cryptocurrency Market

1,2 and 3,4,*,†
Department of Economics, Tel Aviv University, Tel Aviv 6997801, Israel
CEPR, London EC1V 0DX, UK
Bank of Canada, Ottawa, ON K1A 0G9, Canada
Stern School of Business, New York University, NY 10012, USA
Author to whom correspondence should be addressed.
Views presented in this paper are those of authors, and do not represent Bank of Canada’s position
Academic Editors: Thomas D. Jeitschko and Mark J. Tremblay
Games 2016, 7(3), 16;
Received: 18 March 2016 / Revised: 27 June 2016 / Accepted: 29 June 2016 / Published: 7 July 2016
(This article belongs to the Special Issue Game Theoretic Analyses of Multi-Sided Markets)
PDF [542 KB, uploaded 2 August 2016]


We analyze how network effects affect competition in the nascent cryptocurrency market. We do so by examining early dynamics of exchange rates among different cryptocurrencies. While Bitcoin essentially dominates this market, our data suggest no evidence of a winner-take-all effect early in the market. Indeed, for a relatively long period, a few other cryptocurrencies competing with Bitcoin (the early industry leader) appreciated much more quickly than Bitcoin. The data in this period are consistent with the use of cryptocurrencies as financial assets (popularized by Bitcoin), and not consistent with winner-take-all dynamics. Toward the end of our sample, however, things change dramatically. Bitcoin appreciates against the USD, while other currencies depreciate against the USD. The data in this period are consistent with strong network effects and winner-take-all dynamics. This trend continues at the time of writing. View Full-Text
Keywords: network effects; cryptocurrencies; first mover advantage network effects; cryptocurrencies; first mover advantage

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Gandal, N.; Halaburda, H. Can We Predict the Winner in a Market with Network Effects? Competition in Cryptocurrency Market. Games 2016, 7, 16.

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