This paper examines the role of platform-issued money in shaping digital marketplace competition against a legacy fiat market. We show that platform money kickstarts network effects in two-sided markets, complements core matching services, and strengthens market power. This monetary policy is disciplined internally by the users’ demand elasticity, and externally by legacy inflation, anchoring the issuer to an inflation markup over the Friedman rule. We further demonstrate that platform money improves welfare when the issuer possesses superior matching technology. Consequently, a competitive public currency, such as a Central Bank Digital Currency, can structurally constrain the platform’s monopoly pricing power. Finally, we show that platforms may optimally reject outside money to strategically segment the user base, softening competition with the legacy market to extract higher seigniorage.
