Innovation, Competition, and Market Structure – Evidence From Bitcoin’s Mining Market

We construct and estimate a dynamic oligopoly model of the Bitcoin mining market. Mining equipment manufacturers produce differentiated durable capital goods and endogenously choose optimal investments in R&D. Miners make dynamic purchase decisions based partly on beliefs regarding manufacturers' future choices. We show the industry is uniquely suited to test the relation between innovation features, such as spillovers and investment elasticity, and industry competition and structure. We further show that policy-relevant values, such as aggregate R&D investment by manufacturers and Bitcoin's energy consumption, are predictable given only a Bitcoin price-path