The Value of Smart Contract and Members' Participation Incentives in a Co-Opetitive Supply Chain

Posted: 22 May 2020

See all articles by Baozhuang Niu

Baozhuang Niu

School of Business Administration, South China University of Technology

Fengfeng Xie

affiliation not provided to SSRN

Lei Chen

affiliation not provided to SSRN

Yulan Wang

Hong Kong Polytechnic University

Date Written: April 26, 2020

Abstract

Smart contract is a disruptive FinTech that is signed in advance and automatically executed when the goods are received. Therefore, the buyer will settle accounts without delay payment under smart contract, which benefits the supplier in B2B transactions. However, how to motivate the buyer to participate in smart contract? In this paper, we consider a supplier selling goods through retailers such as Wal-Mart in a co-opetitive supply chain, where the retailer buys and resells the supplier's goods and the supplier encroaches on the market by opening a direct channel. Without smart contract, the supplier incurs cash opportunity cost because of the retailer's delay payment (referred to as Traditional Contract scenario). With smart contract, the retailer needs to pay the supplier immediately when the goods arrive (referred to as Smart Contract scenario). We use Generalized Nash Bargaining to formulate the contract negotiation, and show that the adoption of smart contract changes the competition and cooperation between the supplier and the retailer both vertically and horizontally. We find that, when the supplier's unit cash opportunity cost is high (low), the smart contract enhances (weakens) the coordination in the reselling channel, increases (decreases) the reselling channel's market share compared to the direct-selling channel, and increases (lowers) the retailer's proportion in the reselling revenue. Interestingly, we show that, when the supplier's bargaining power is moderate or extremely low, it prefers traditional contract when the unit cash opportunity cost is moderate. We also show that, the retailer and the supplier have incentive alignment to adopt smart contract when the supplier's unit cash opportunity cost is high. We further study the impact of the supplier's merchant discount fee under traditional contract and its commission cost when the direct channel is an online store, finding that our main results are qualitatively unchanged.

Keywords: Blockchain, Smart contract, Disruptive FinTech, Nash bargaining, Co-Opetition.

Suggested Citation

Niu, Baozhuang and Xie, Fengfeng and Chen, Lei and Wang, Yulan, The Value of Smart Contract and Members' Participation Incentives in a Co-Opetitive Supply Chain (April 26, 2020). Available at SSRN: https://ssrn.com/abstract=3585545

Baozhuang Niu (Contact Author)

School of Business Administration, South China University of Technology ( email )

Wushan
Guangzhou, AR Guangdong 510640
China

Fengfeng Xie

affiliation not provided to SSRN

Lei Chen

affiliation not provided to SSRN

Yulan Wang

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong

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