The Blockchain Newsvendor: Value of Freshness Transparency and Smart Contracts

55 Pages Posted: 3 Sep 2021

See all articles by N. Bora Keskin

N. Bora Keskin

Duke University - Fuqua School of Business

Chenghuai Li

Duke University - Fuqua School of Business

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business

Date Written: August 31, 2021

Abstract

Motivated by blockchain applications in the fresh produce industry, we consider a newsvendor problem in which a retailer faces stochastic and freshness-dependent consumer demand. The retailer can adopt blockchain technology to have more transparent information on the freshness of supply. We quantify the value of blockchain-enabled fresh-ness transparency by analyzing the retailer’s expected profit growth and food waste reduction brought by adopting blockchain, relative to the case of a traditional retailer without blockchain. We extend our model and analysis to the case of smart contracts that enable automated trade as long as supply is sufficiently fresh, and examine the added value of such smart contracts to the retailer. Finally, we also generalize our findings to the cases of (i) dual sourcing, (ii) noisy measurements in Internet of Things (IoT) sensors feeding data into the blockchain system, and (iii) price differentiation based on freshness.

Keywords: Blockchain, supply chain transparency, freshness, newsvendor, smart contracts, dual sourcing, Internet of Things, price differentiation.

Suggested Citation

Keskin, N. Bora and Li, Chenghuai and Song, Jing-Sheng Jeannette, The Blockchain Newsvendor: Value of Freshness Transparency and Smart Contracts (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3915358 or http://dx.doi.org/10.2139/ssrn.3915358

N. Bora Keskin (Contact Author)

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States

HOME PAGE: http://faculty.fuqua.duke.edu/~nk145/

Chenghuai Li

Duke University - Fuqua School of Business ( email )

Durham, NC
United States

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Duke University
Durham, NC 27708
United States

HOME PAGE: http://people.duke.edu/~jssong/

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