Dynamic supervision of counterfeit products based on blockchain technology: A differential game on goodwill accumulation

Abstract

Counterfeiting is a serious problem in many industries, and the annual profit and tax losses caused by counterfeit products in China have reached over 60 billion yuan. The focus of this paper is to study the effect of blockchain technology in terms of supervising counterfeit products as well as product quality and service decisions under blockchain from a dynamic optimization perspective. We consider the role of blockchain when disclosing product quality information and develop a dynamic optimization model before and after blockchain adoption using differential game theory. Meanwhile, we solve the model using the Hamilton-Jacobi-Bellman (HJB) equation and backward induction and conduct parametric, comparative, and numerical analyses of the equilibrium solutions. The main findings are as follows: First, we find that in the absence of blockchain, counterfeit products can reduce brand goodwill and decrease the quality and service level of genuine products; however, supervising counterfeit product sales through blockchain can improve this problem under the critical conditions determined in this work. Second, in the direct sales mode, we find that if the unit operating cost and fixed cost of blockchain are small, the brand owner’s adoption of blockchain can not only combat the counterfeiter’s profit but also increase its own profit. Third, in the wholesale sales mode, we find that the best conditions in which a brand owner can establish blockchain are only related to the related costs of blockchain, while retailers also need to increase the selling price of genuine products when establishing blockchain. Fourth, we find that supply chain performance and blockchain supervisory effects are sensitive to key parameters through numerical analysis in a quantitative form. These findings have important implications for genuine enterprises in terms of determining the conditions for establishing blockchain to combat counterfeiting and for optimizing product quality and service decisions when using blockchain technology.