Blockchain Adoption in a Supply Chain with Market Power

46 Pages Posted: 27 Oct 2021 Last revised: 24 Jun 2022

See all articles by Garud Iyengar

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Fahad Saleh

Wake Forest University - Schools of Business

Jay Sethuraman

Columbia University

Wenjun Wang

Columbia University - Department of Industrial Engineering and Operations Research (IEOR)

Date Written: October 26, 2021

Abstract

We examine a supply chain with a single risk-averse manufacturer who purchases from vendors and sells to consumers. Within this context, we establish two channels that drive blockchain adoption by the manufacturer: manufacturer risk aversion and consumer information asymmetry. With regard to 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 vendors and thereby leads the manufacturer to endogenously diversify across vendors when blockchain is adopted. The diversification enhances the manufacturer's welfare due to her risk aversion and thus drives her 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 enables improved consumer decision-making and thereby increases consumer welfare. The manufacturer responds optimally by increasing the consumer price which transfers a portion of the consumer's welfare gain to the manufacturer, enhancing manufacturer welfare and serving as a second channel to drive blockchain adoption by the manufacturer.

Keywords: Blockchain, Blockchain Adoption, Supply Chain, Market Power

JEL Classification: G00, O30

Suggested Citation

Iyengar, Garud and Saleh, Fahad and Sethuraman, Jay and Wang, Wenjun, Blockchain Adoption in a Supply Chain with Market Power (October 26, 2021). Available at SSRN: https://ssrn.com/abstract=3950580 or http://dx.doi.org/10.2139/ssrn.3950580

Garud Iyengar

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

Fahad Saleh (Contact Author)

Wake Forest University - Schools of Business

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

Jay Sethuraman

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Wenjun Wang

Columbia University - Department of Industrial Engineering and Operations Research (IEOR) ( email )

331 S.W. Mudd Building
500 West 120th Street
New York, NY 10027
United States

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