Sales channel competition for supply chain with the blockchain technology

Abstract

AbstractThe emerging blockchain‐supported platforms (BSPs) become prevalent with higher product quality and guaranteed authenticity, making the competition between BSP and traditional sales channels (TSC) gain attention. To explore the optimal operation strategies for retailers in TSC and BSP, we develop the vertically differentiated model to describe the channel competition and derive optimal decisions for two retailers. Then, the BSP's comparative advantage and the value of blockchain technology are analyzed. Next, we examine how blockchain quality disclosure and network externalities affect channel competition, as well as the impact of government policies. We find that (i) a higher quality improvement in BSP will simultaneously increase both retail prices and retailers’ profit under some circumstances. Meanwhile, the counterfeit sold in the TSC and channel switching hassle in the BSP make retailers’ products less competitive and reduce profits, respectively. (ii) Being a BSP retailer is not necessarily better, as blockchain's effect on product quality and consumer experience determines market share and profitability. Whether consumers can benefit from blockchain depends on the basic value of the BSP product and the aggregate level of consumer utility from the BSP. (iii) Blockchain‐based quality disclosures and network externalities might not always benefit BSPs, they could increase BSP retailers’ costs or increase competition in the market. (iv) The strict supervision policy reduces the TSC retailer's profit and product quality. Meanwhile, the technology subsidy policy contributes to the development of the BSP, but the BSP retailer needs to be wary of uncontrolled price increases due to policy spillover effects.