Who should invest in blockchain technology under different pricing models in supply chains?

Chang Fang, Mingxiang Chi, Shuyi Fan and Tsan-Ming Choi

European Journal of Operational Research, 2024, vol. 319, issue 3, 777-792

Abstract: In recent years, members of supply chain have rushed to invest in blockchain technology to improve product traceability for more profits in their operations. When both the manufacturer and retailer can afford the cost of blockchain, a question arises: who should invest in blockchain technology? To benefit from blockchain investment, the retailer such as Walmart, which has a higher power in the choice of pricing models than the manufacturer, will examine the blockchain investment motives of supply chain members and carefully design the pricing model: a wholesale pricing model or an agency pricing model. In this paper, we establish game-theoretic models to explore the interaction between the retailer's choice of the pricing model and supply chain members' choice of the blockchain investor. Our results show that a bit surprisingly, the demand of privacy-sensitive customers decreases even if they do not use blockchain traceability services provided by supply chain members. We also obtain the retailer's equilibrium pricing model choice together with the supply chain members' blockchain investment decisions, which depends on the commission rate. An interesting insight is that when the commission rate is medium, supply chain members will be locked in a prisoner's dilemma where both the manufacturer and retailer want to free ride on the blockchain investment to maximize their own profits, which ultimately leads to the loss of both parties due to no blockchain investment. Finally, we design a cost-sharing contract under the Nash negotiation framework when the two parties face conflict in the choice of blockchain investor.

Keywords: Supply chain management; Blockchain technology; Choice of investor; Pricing model; Cost-sharing contract (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:319:y:2024:i:3:p:777-792

DOI: 10.1016/j.ejor.2024.07.006

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