Strategic decisions on blockchain adoption and fee structure in a heterogeneous consumer market

This study investigates a supply chain with a manufacturer and a retailer, where the manufacturer faces the decision of when and how to introduce blockchain in collaboration with a blockchain service firm to serve heterogeneous consumers. The blockchain service firm and the manufacturer negotiate under three alternative fee structures to determine the specific fee offered by the manufacturer. Through the comparison of equilibrium results in the presence and absence of blockchain adoption, we illustrate that the decisions of whether and with which fee structure to adopt blockchain are principally contingent on the trade-off between the benefits arising from market expansion and the costs of blockchain, which are driven by the interplay among the consumers’ average traceability awareness, the fraction of information-sensitive consumers, and the blockchain service firm’s fixed cost. Moreover, our analysis also demonstrates that the manufacturer will solely choose the annual lump-sum fee or unit usage fee to cooperate with the blockchain service firm, while the mixed fee will never be chosen. Additionally, the annual lump-sum fee emerges as the only viable option to ensure profitable outcomes for all members. Notably, we consider two extensions: mixed cost borne by the blockchain service firm and stochastic demand. The extended analyses reveal that the mixed fee may become the optimal choice under specific conditions when the blockchain service firm bears mixed cost. Meanwhile, the main outcomes remain robust under stochastic demand. Overall, these findings provide valuable managerial insights for firms evaluating blockchain adoption and designing effective fee structures in heterogeneous consumer markets.