Duopoly Competition in Blockchain Game with Interoperability

Abstract

As a bridge connecting the Web3 financial ecosystem and digital games, smart contracts empowered blockchain games have attracted significant attention from the Web3 community in recent years. By providing players ownership over assets and interoperable Non-Fungible Tokens (NFTs), blockchain games enable the reuse of in-game assets beyond the original games, thereby overturning the “walled garden” among traditional games. Nonetheless, blockchain games diminish the monopolistic edge previously held by traditional game providers, forcing them to compete with players by token distribution. Therefore, this paper explores the duopoly competition within the blockchain game market, emphasizing the role of interoperable NFTs together with NFT wear and tear. Specifically, we propose a three-stage game to formulate the interactions between game providers and players. Besides, we revealed the relationship between game providers' code disclosure strategies for NFT interoperability and token retention strategies. Finally, the experimental results demonstrate how the token distribution, players' preferences, and the NFT wear level affect the profits of game providers.