Platform Supported Supply Chain Operations in the Blockchain Era: Supply Contracting and Moral Hazards*

ABSTRACT Platform operations are very common in the sharing economy. Nowadays, retailers can sell the end‐of‐season product leftovers to platforms which offer product rental services to the market. Motivated by this observed industrial practice, we build stylized supply chain models to explore the platform supported supply chain operations. We uncover that the presence of the platform creates the “triple marginalization” problem in which supply chain coordination cannot be achieved even if the manufacturer is willing to supply at cost using the wholesale pricing contract. We show how the markdown sponsor (MS) contract can deal with the triple marginalization problem and achieve supply chain coordination. However, we illustrate that a moral hazard problem, in which the retailer has incentive to overclaim the amount of markdown sponsor, arises. We reveal that the moral hazard problem brings a loss to the manufacturer, an immoral gain for the retailer, and there is no impact on the platform and consumers. We analytically derive the impact of moral hazard (which means the loss to the manufacturer, and the gain for the retailer) and find that it relates to the markdown sponsor rate, as well as the degree of overclaiming. To overcome the moral hazard problem under MS contract, we propose measures such as the adoption of blockchain technology, and “discounted” markdown sponsor contract, to help. We also explore the implementations of other contracts to overcome the moral hazard, like virtual buyback with inventory reallocation contract, and wholesale pricing contract with side payments.