Who should adopt blockchain? The interplay between blockchain adoption and online channel under competition

Abstract

With the frequent occurrence of product quality and product safety problems, traditional supply chain traceability systems have become increasingly untrustworthy to consumers due to their centralization, opacity, and vulnerable to tampering. Blockchain technology, as an emerging information technology, can help to increase consumer trust and resolve these issues. This paper investigates a competitive market with two rival supply chains that manufacture and sell two substitutable products. We establish a game model to analyze the equilibrium strategy in the implementation of blockchain technology and online channel, under the scenarios of blockchain adoption by the manufacturer and the retailer, and further explore the effects of blockchain technology on supply chain efficiency and consumer surplus. Additionally, we compare various blockchain technology adoption scenarios and determine the optimal candidate for blockchain adoption. The following results are shown. First, the equilibrium strategies for applying blockchain technology and online channel depend on the entry cost, the net surplus of substitute product, and the deployment cost of blockchain technology. Second, blockchain technology can only influence online channel decisions when the entry cost is moderate, and may encourage (discourage) the manufacturer to establish an online channel when it is utilized by the manufacturer (retailer). Thirdly, blockchain technology is certain to expand the market share of the product but is likely to detriment the retailer and the consumers when the manufacturer utilizes it. If blockchain technology is adopted by the retailer, the market share and consumer surplus may decrease, but the manufacturer will be unharmed. Lastly, the manufacturer has greater flexibility in adoption decisions when blockchain technology can be implemented by both the manufacturer and the retailer.