The role of blockchain technology in the dual-channel supply chain dominated by a brand owner

Abstract

Counterfeit and low-quality products pose huge challenges to brand owners. Consumer trust in brands requires facilitation from product information disclosure. A traceability system enabled by blockchain technology (BCT) presents one of the most promising solutions to these issues and contributes to two effects: total market potential improvement (TMPI) effect and market share adjustment (MSA) effect. As an initial attempt to consider the impacts of BCT on market share, we focus on whether the powerful brand owner in a dual-channel supply chain should adopt BCT. Specifically, we consider two scenarios: without BCT adoption (Scenario N) and with BCT adoption (Scenario B). By modeling the two effects, this study investigates the impact of BCT on equilibrium strategies and the boundary conditions under which the brand owner is motivated to implement BCT. Our analysis indicates that the adoption of BCT is always beneficial to the retailer, which creates a “free-rider” problem. However, the brand owner does not always benefit from BCT adoption. The brand owner should adopt BCT when the MSA effect is small and the retailer's market share in Scenario B exceeds a certain threshold, even if there is no TMPI effect. Otherwise, it is wise for the brand owner to adopt BCT only when the TMPI effect is sufficiently large. Interestingly, we also find that the MSA effect plays a role in alleviating channel conflict and partially coordinating the dual-channel supply chain. The results provide managerial insights into whether brand owners should adopt BCT to improve product traceability.