Blockchain Adoption for Combating Deceptive Counterfeits

We examine how blockchain technology can be used to combat counterfeiting. Specifically, we consider a market that consists of a manufacturer and a counterfeiter. The manufacturer can either use blockchain or signal through pricing to validate product authenticity. Customers have privacy concerns around blockchain usage. We find that blockchain should be used only when customers have intermediate distrust about products in the market. In markets with relaxed intellectual property regulations against counterfeiting where customers have serious distrust about products, pricing strategy is more effective than blockchain. Further, when the counterfeiter can produce a comparable quality product, the manufacturer could benefit using a pooling strategy. This benefit can be sufficiently large such that the manufacturer may not use blockchain even when the government offers subsidy or even when implementation is free. However, we show that blockchain can be more effective than pricing strategy in eliminating the post-purchase regret and improving social welfare.