Implications of Blockchain-Powered Marketplace of Preowned Virtual Goods

The first‐sale doctrine, which protects consumers’ rights to resell purchased products, has been recognized by the US Supreme Court since 1908. In recent years, consumers have begun to purchase an increasing amount of virtual goods, which renders the first‐sale doctrine unclear. There are two main challenges leading to the uncertainty of the first‐sale doctrine in the digital age: lack of proper technology, and economic implications for developers and consumers. The advent of the blockchain solves the technology challenge, as it can track provenance and establish the chain of custody. In this study, we construct an analytical model to investigate the economic impact of trading preowned virtual items. Specifically, our model captures the decentralized nature of blockchain technology by allowing consumer‐to‐consumer trading, and considers the possibility that consumers prefer preowned virtual items over new ones because preowned items may be upgraded between purchase and resale. Lawmakers seek to strike a balance between the interests of virtual item developers and individual consumers. We show that, surprisingly, the introduction of a blockchain‐based preowned virtual item transaction can actually benefit both developer and consumer. The main intuition is that the developer can adjust the price when forward‐looking consumers incorporate the expected future transaction into their purchase decision. Our analysis also reveals that developers are more willing to embrace the secondary market when they can take a cut during the transaction. Our results provide important policy implications to the burgeoning debate of the first‐sale doctrine in the new digital world.