The interplay of manufacturer encroachment and blockchain adoption to combat counterfeits in a platform supply chain

Abstract

Consumers’ perception of product value when purchasing is a critical issue relative to online platform commerce. This is especially true when the brand manufacturer authorises only a third-party reseller to sell through the platform, a practice that may provide opportunities to counterfeiters. To address this issue, we establish a theoretical model in which one brand manufacturer wholesales its products to a third-party reseller who then sells through an online platform. The platform acts as a marketplace, while multiple counterfeiters also exist on the platform, which may deceive consumers. In particular, we consider that the manufacturer can encroach with a direct channel and that the platform can adopt blockchain technology to help consumers identify authenticity. The results show that the platform could induce the brand manufacturer to encroach by deploying blockchain technology. Furthermore, an interesting result indicates that although either manufacturer encroachment or blockchain technology used alone can effectively boycott counterfeits, the coexistence of two strategies can raise the demand for counterfeit products. Finally, we find that when the brand manufacturer encroaches on the platform and the platform adopts blockchain technology, the brand manufacturer, platform, reseller and social welfare can achieve Pareto improvement, while the consumer surplus may be worse off.