Blockchain Adoption in a Supply Chain with Manufacturer Market Power

Garud Iyengar (), Fahad Saleh (), Jay Sethuraman () and Wenjun Wang ()
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Garud Iyengar: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Fahad Saleh: School of Business, Wake Forest University, Winston-Salem, North Carolina 27109
Jay Sethuraman: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027
Wenjun Wang: Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027

Management Science, 2024, vol. 70, issue 9, 6158-6178

Abstract: We examine a supply chain with a single risk-averse manufacturer who purchases from suppliers and sells to consumers. Within this context, we focus on two channels that drive blockchain adoption by the manufacturer: manufacturer risk aversion and consumer information asymmetry. Regarding the first channel, blockchain enables efficient tracing of defective products so that the manufacturer can selectively recall defective products rather than conducting a full recall. This tracing ability reduces the risk involved in the manufacturer purchasing from multiple suppliers and thereby leads the manufacturer to endogenously diversify across suppliers when blockchain is adopted. The diversification enhances the manufacturer’s welfare due to the manufacturer’s risk aversion and thus drives the manufacturer to adopt blockchain. With regard to the second channel, blockchain stores details from the manufacturing process and reveals them to consumers, thereby ameliorating consumer information asymmetry. This reduction in information asymmetry improves consumer decision making that, in isolation, would enhance consumer welfare. However, the manufacturer responds by increasing the consumer price, thereby transferring potential consumer welfare gains to the manufacturer, and consequently serving as a second channel to drive blockchain adoption by the manufacturer.

Keywords: blockchain; blockchain adoption; supply chain; market power (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6158-6178

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