Why do social networks introduce virtual currencies?

Gastón Giordana and Paolo Guarda

No 132, BCL working papers from Central Bank of Luxembourg

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.

Keywords: Private virtual currencies; social networks; retail payments (search for similar items in EconPapers)
JEL-codes: E42 E5 G23 L5 L82 L86 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2019-10
New Economics Papers: this item is included in nep-ict, nep-mac and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp132

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