The strategic use of blockchain technology to anti-counterfeiting in the luxury goods market

Abstract Accepted by: Aris Syntetos Advances in information technology have enabled brand firms to combat counterfeiting using blockchain technology. We develop a game-theoretic model that considers the interactions between a brand firm and a counterfeiter. The brand firm has the option to prevent deception directly by implementing blockchain technology or to indirectly deter deception through pricing mechanisms. By analysing the motivation behind using blockchain technology, we have reached the following conclusion: blockchain technology may not always be advantageous for the brand firm. Indeed, the brand firm may occasionally prefer pricing mechanisms over blockchain, even if the cost of blockchain adoption is extremely low. With respect to other stakeholders in the supply chain, our analysis shows that blockchain consistently reduces the profits of the counterfeiter but does not invariably increase consumer surplus and social welfare. However, there may be a favourable parameter range where the brand firm, consumers and society can all benefit from blockchain technology, leading to a win-win-win outcome. Furthermore, we discover that a higher-quality counterfeit may harm the counterfeiter but benefit the brand firm. Finally, we show that as the probability of not being able to recognize a genuine product from a counterfeit in the marketplace decreases, the brand firm’s incentive to adopt anti-deception measures increases.