Pricing and blockchain adoption for competitive sellers on an e-commerce platform with different contracts

Abstract

We examine the impact of a blockchain technology (BCT) adoption strategy on the decisions and profits of branded companies and counterfeiters, and then discuss how BCT helps counterfeiters transform on a platform offering blockchain services and commission contracts. Our results show that BCT can make the branded seller better off when a platform has more brand-conscious consumers, despite the high adoption fee. Due to the free-riding effect, the counterfeiter’s best choice is often not to adopt BCT. As the fraction of brand-unconscious consumers increases, even with low adoption fee, the branded seller will not use BCT, but the counterfeiter will adopt BCT to transform her business and become a legitimate seller by offering innovative products, which increases consumer surplus. As the counterfeit probability and blockchain added value increase, both sellers proactively adopt BCT to disclose product authenticity, which may worsen the platform and social welfare. Importantly, there is a win–win–win outcome for sellers, platforms and consumers when at least one seller adopts BCT, depending on the interaction among the abovementioned factors. Compared with the proportional-fee contract, the fixed-fee contract improves the cost affordability of both sellers. In the context of different consumer types on platforms, our findings offer guidelines for branded companies to solve the authenticity problem of products and for counterfeiters to transform their businesses.