Price competition and blockchain adoption in retailing markets

The blockchain is essentially a shared database, and the data stored is unforgeable, open and transparent, which may allow the retailers adopting the blockchain technology to attract more consumers by making product information more transparent, while it also leads to the risk of consumers privacy leakage due to storing the corresponding consumers’ personal information. In order to study the impact of blockchain technology on competitive retailers’ strategic pricing, we establish a retailer competition model including an initial retailer and an entrant retailer both of whom can decide whether to apply the blockchain technology. We obtain the optimal prices and corresponding profits of the two retailers when applying and not applying blockchain, respectively, and find that consumer privacy concerns decline both retailers’ prices and profits when adopting blockchain technology because consumer privacy concerns lower consumers’ valuations of products, thereby reducing demand. Furthermore, we analyze the two retailers’ equilibrium strategies of the application of blockchain technology, which suggests that it is not always beneficial for retailers to adopt blockchain technology in all situations. Both retailers will apply blockchain only when consumer privacy concerns are lower and information transparency promotion is higher because higher information transparency promotion increases consumers’ willingness to pay, which exceeds the cost of consumers privacy concerns. On the contrary, when consumer privacy concerns are higher and information transparency promotion is lower, neither retailer will apply blockchain technology. Interestingly, when both consumer privacy concerns and information transparency promotion are medium, the initial retailer will apply blockchain technology and the entrant retailer will not because consumers’ higher trust in initial retailer allows the initial retailer can bear higher cost of consumers privacy concerns which is hard to undertake for the new entrant retailer when information transparency promotion is medium.