Incentive alignment for blockchain adoption in medicine supply chains

Abstract In recent years, blockchain technology has been increasingly adopted in OTC medicine supply chains, enabling customers to track the entire process from raw material purchasing to finished medicine distribution. This improves the brand image and hence expands the market. With the use of blockchain, information transparency can be achieved because data are stored immutably and safely in a distributed database that is accessible by all supply chain members. However, will the incentives for supply chain members to participate in blockchain for larger-scale demand come at the cost of information disclosure? In this paper, to investigate the supply chain members’ incentive alignment opportunities towards the adoption of blockchain technology, we consider a two-stage supply chain comprising two medicine manufacturers and a common retailer that has more accurate demand information than the manufacturers have. We find that, interestingly, the retailer has incentives to participate in blockchain when the manufacturers’ competition is mild and the demand variance is low. We further investigate the impact of blockchain on total surplus and customer surplus and find that the adoption of blockchain always benefits customers and society; therefore, blockchain can be particularly useful for social goods such as OTC medicine.