Blockchain Collaboration with Competing Firms in a Shared Supply Chain: Benefits and Challenges

Abstract

Field research has shown that companies are investing in blockchain technology for their supply chains in order to benefit from enhanced visibility, but face challenges in creating partnerships with other firms in their supply chain, some of whom could be competitors, under uncertainty about where the cost and benefit of blockchain enabled network visibility will fall. On the one hand, visibility over actions of supply chain partners can improve operational decisions, but on the other hand, sharing own data on a blockchain creates opposing forces. In this paper, we investigate these questions theoretically by studying the impact of network visibility in a specific two-tier supply chain setting that consists of an upstream supplier and two competing downstream manufacturers. The supplier’s capacity is limited so that the manufacturers compete on both the supply side and the demand side. Network visibility enables the manufacturers to know each other’s existence. By comparing the cases with and without network visibility, we study how the network visibility affects the supplier, the manufacturers, and the entire supply chain. We find that the manufacturers can benefit from network visibility when the supplier’s capacity is sufficiently small or sufficiently large, but the underlying reasons are different. When the supplier is highly capacitated, network visibility creates value to the manufacturers by mitigating their over-order incentive. When the supplier’s capacity is sufficient, network visibility creates value to the manufacturers by mitigating their under-order incentive. Moreover, network visibility can help improve the supplier’s profit when her capacity is not too small because in this case, the supplier can sell more with network visibility. Finally, from the perspective of the entire supply chain, we find that network visibility can help alleviate double marginalization and improve the total supply chain profit if and only if the supplier’s capacity is sufficiently large. Furthermore, as long as network visibility is beneficial to the entire supply chain, it is also beneficial to both the supplier and the manufacturers at the same time, hence blockchain can be naturally initiated by any firm in the supply chain network. Our model particularly addresses the question whether competing firms would join a shared blockchain.

Keywords: blockchain, network visibility, rationing games, competition, supply chain management

JEL Classification: C72, D21, D45, O31