Blockchain Adoption for Combating Deceptive Counterfeits

Abstract

Counterfeiting is a severe problem in many sectors. There are two types of counterfeits: non‐deceptive and deceptive. While both types are important business challenge, deceptive counterfeit has an additional negative impact—customers have a post‐purchase regret if they expect to purchase a real product but ended up with a fake. The focus of this study is on the setting that relates to deceptive counterfeits. Our paper is one of the first that examines the effectiveness of blockchain as a solution to a supply chain challenge. Specifically, the unique feature of blockchain that we model, which none of the traditional strategies studied in the literature is capable of, is that blockchain adoption changes the analysis from a deceptive counterfeit setting to a non‐deceptive counterfeit setting. We also consider government being a decision maker and customers' privacy concern from blockchain adoption, two features that are not examined in the existing literature. We consider a market with a manufacturer and a deceptive counterfeiter. The manufacturer can signal product authenticity either with blockchain technology or through pricing. The government can provide subsidy to encourage blockchain adoption. Blockchain should be used when the counterfeit quality is intermediate or when customers have intermediate distrust about products in the market. If government provides subsidy, blockchain can be more effective than differential pricing strategy in eliminating post‐purchase regret. Our results advocate for government providing subsidy because it benefits both customers and the society and could be a better approach than government enforcement efforts.