EURO 2024 Copenhagen
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3559. Impact of blockchain on product pricing and vertical differentiation

Invited abstract in session WA-59: Pricing and applications 2, stream Pricing and Revenue Management.

Wednesday, 8:30-10:00
Room: S08 (building: 101)

Authors (first author is the speaker)

1. Maher Agi
Rennes School of Business
2. Erfan Asgari
Excelia Business School

Abstract

We consider a manufacturer who sells two vertically differentiated products: a high-quality product and a low-quality product. Using blockchain is assumed to have a multiplicative increase of consumer perception of the product’s quality and a loss of consumer utility due to privacy concerns. It is also associated with a fixed cost implementation and a per unit marginal cost. Given this, we build a stylized model based on customer utility and self-selection to study the impact of using blockchain on the conditions of co-existence of the two types of product on the market, the products’ optimal prices, their respective market shares, the manufacturer’s profit and his differentiation strategy.

Preliminary results show that the two products will continue to coexist while blockchain is being used only if the loss of consumer utility due to privacy concerns is contained within a certain interval (neither too high nor too low). The results also demonstrate a cannibalization effect of blockchain, while the manufacturer’s overall market coverage remains the same. Moreover, the results establish the sensitivity of the benefit from using blockchain to the level of differentiation between the two products, and the impact of blockchain usage on the product differentiation level.

Keywords

Status: accepted

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