Strategic Impacts of Blockchain Adoption on Contractor Decisions in Competitive Construction Markets: A Game-Theoretic Approach

Blockchain applications have obtained extensive attention in the construction industry. However, little research has investigated the effects of blockchain adoption on construction firms’ operation strategies. This paper used a game theoretic model to investigate how blockchain technology influences contractors’ optimal pricing and quality effort decisions in a competitive market. Our analyses revealed that when the blockchain operation cost is high, the contractor using blockchains will improve its quality efforts and set a higher price. The competitor without blockchains behaves the opposite. In this case, market shares and profits of the contractor with blockchains increase, indicating that blockchain adoption can increase the owners’ perceived value and willingness to pay. More importantly, this finding indicated that blockchain adoption enhances construction service differentiation, and owners prefer cooperation with contractors capable of delivering high-quality services rather than simply selecting the lowest bidder. We found that adopting blockchains does not always guarantee higher-quality results. Contractors using blockchains will reduce quality efforts but set higher prices when the blockchain operation costs are low. Interestingly, blockchain adoption will increase contractors’ quality efforts, construction service prices, and profits when the blockchain operation costs are high. This study contributes to understanding the strategic impacts of blockchain adoption in a competitive construction market. The findings also provide significant implications for industrial managers and policymakers on benefitting from blockchain technology adoption.