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We analyze benefits and limitations of information sharing among product market rivals via a smart-contract-enabled blockchain. Firms face uncertain demand but obtain informative signals that can be reported to a blockchain, which ensures immutable recording but does not guarantee truth-telling. Truthful reporting is incentivized by requiring firms to post collateral (“stake”), which is forfeited if the report is deemed untruthful ex-post. We derive (a) conditions under which truthful reporting arises in equilibrium and (b) the necessary amount of collateral that ensures truthful reporting, and examine their comparative statics with respect to ex-ante demand uncertainty, signal precision, and competitive interaction among firms. While the collateral is returned to firms whose production decision is consistent with their report, financially constrained firms may struggle to afford the required stake. Thus, they are potentially unable to join the blockchain. We investigate conditions under which it is beneficial for firms to partially subsidize their rivals’ collateral costs. Finally, we examine welfare implications of information sharing via blockchain, and we show that such information sharing is welfare improving.
Flor et al. (Fri,) studied this question.