Working Paper No. 00029-00
Blockchain technology features decentralized consensus as well as tamper-proof and algorithmic executions, and consequently enlarges the contracting space through smart contracts. Meanwhile, the process of generating decentralized consensus, which involves information distribution, necessarily alters the informational environment. We analyze how decentralization improves consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate information asymmetry and deliver higher social welfare and consumer surplus through enhanced entry and competition, yet blockchains may also encourage collusion due to the irreducible distribution of information, especially in consensus generation. In general, blockchains can sustain market equilibria with a larger range of economic outcomes. We further discuss anti-trust policy implications targeted to blockchain applications, such as separating consensus record-keepers from users
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