Combating Copycats in the Supply Chain with Permissioned Blockchain Technology

Abstract

The phenomenon of copycats is common in a wide range of industries. Recently, to indicate product authenticity and combat copycats, many brand name companies (BNCs) have started selling products through retailers. These BNCs deploy a scalable protocol that is integrated into a permissioned blockchain technology (PBT) platform. We examine how PBT combats copycats in the supply chain and how it benefits BNCs. Although PBT implementation helps novice customers identify product authenticity and the real quality of products, that is, to take advantage of a quality disclosure effect, we show that, if and only if the number of novice customers is large enough, then selling through a PBT retailer can effectively combat copycats. Thus, PBT increases the profit of the BNC, consumer surplus, social welfare, and reduces the profit of a copycat. Moreover, conventional wisdom tells us that PBT ensures supply chain transparency and motivates a firm to improve its product quality. However, the BNC reduces the quality of its products when using PBT, because an improvement in product quality is not profitable if consumers can distinguish between genuine and imitation products. Furthermore, we extend the model by considering the case where the BNC itself implements PBT. Without the double marginalization effect, even if the number of novice customers is small, blockchain technology may exist in the market (the BNC self‐implements). In addition, if the unit production cost of a genuine product is large enough, social welfare increases when production cost increases.