In the concept of supply and demand, the competition between market participants is a driving force to drive market events forward. Game theory is a well-established means of describing what is happening in the market environment. The non-cooperative game theory describes an environment with the absence of an external authority to enforce rules. Each player is basically on one ́s own. While this only partially applies to a real market economy because each economy has its legal regulations, a company still can cheat in nowadays often untransparent economical systems, as already laid out in the beginning of the thesis. Even though companies claim to behave in a correct manner, like Google ́s marketing slogan proclaimed “Don ́t be evil” [2000–2018], a smart contract blockchain ecosystem, like Ethereum, could be the proxy to accomplish a more transparent proclaim and force companies to a code of conduct which could be more like “Can’t be evil”.
Virgil Griffith, who is an American Scientist and Ethereum expert, describes the ability Ethereum could bring into such game-theoretical construct as game wrapping, meaning to create “transparent, triggerable, unstoppable burns and on-chain side-payments to move game-theoretic equilibria or to create new player actions. Game Warping stacks as a new layer atop an uncooperative game to make cooperation the Rational choice” (Griffith, 2019).
In the following, this idea will be demonstrated based on the game theory problem of the Prisoner`s Dilemma. The following example is settled in an economic environment and connects to Griffith’s ideas:
There are two companies. One is the Alice LLC, and the other is the Bob LLC. Both are technology companies that put much of their money into research and development [R&D] of new products. Both companies have a one budget for marketing and one for R&D topics. There is an informal agreement between both companies on leaving their marketing budget relatively low to accelerate the development of new advantaged technologies. Nevertheless, if one of the companies did in- crease their marketing budget, this would lead to a higher sale of a product for that company com- pared to the other, which then could lead to a higher income because higher sales offset the in- creased marketing expenses. However, if also the other company, then decides to increase their marketing budget to hold up in competition, the increased marketing efforts may offset each other and prove ineffective due to the higher advertising expenses, ultimately reducing the company’s income while also lowing the R&D budget, which would be needed for more advantages in technology terms. Overall, this market situation flows in a bad outcome for each company as well as the innovation effectiveness of the market in general.
A Blockchain environment supports the companies in cooperating based on Griffith ́s idea. Imagine both companies interacting as DAOs and beforehand deposit 100M USD in a smart contract, with the smart contract anchored condition: If one DAO increases their marketing budget, the 10M USD will be destroyed (or locked to R&D only topics), which solves the dilemma, because the rational individual decision and the collective decision are now to cooperate:
This simplified example shows how Blockchain technology could possibly increase the capital efficiency of R&D in a comprehensive environment while also allowing the market economies to apply, while not adding an additional intermediate to the concept.
Furthermore, this is an awesome example how cryptoeconomics can actually help to improve our economic in general (even thought we are only looking on a very simplified example here). Driving market forces without any state control in a more humanistic optimal allocation is a huge advantages over our traditional system.