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It is not uncommon for customers who intend to buy a used product in the secondary market to end up with a counterfeit because they have imperfect information about product authenticity. Blockchain technology is being piloted as a cutting-edge solution to this challenge. In this paper, we study the impact of utilizing blockchain for combating counterfeits in the secondary market. We consider a manufacturer that sells (new) products to customers, and a secondary market that consists of an authentic used goods seller and a deceptive counterfeiter. Customers know that new products from the manufacturer are genuine, but they are uninformed about authenticity information in the secondary market. The manufacturer suffers reputation damage when customers buy a fake product unknowingly. They have the option of implementing blockchain to reveal product information so that customers can identify which products in the secondary market are authentic. Our results show that, even when the cost of implementing blockchain is negligible, the manufacturer may be better off incurring reputation damage rather than adopting the technology. Further, the authentic used goods seller can be worse off from the blockchain option, even though it is not responsible for the implementation cost and benefits from blockchain's signaling capability. We also demonstrate that the counterfeiter may benefit as a result of blockchain implementation. When the reputation harm due to customers buying counterfeits unknowingly is large, blockchain decreases consumer surplus and social welfare. The win-win-win situation of the blockchain adoption decision between the manufacturer, customers, and the society is achieved only when the used products and the counterfeits have sufficiently lower quality in comparison to the new product and the reputational damage for the manufacturer is neither too high nor too low.

yeuny@ceibs.edu, scoco@ceibs.edu