The role of third-party retailer adopting blockchain technology in combating gray markets

Blockchain technology enables authorized third-party retailers to provide consumers with transparent and verifiable information on product provenance, quality, and supply chain processes, thereby combating gray markets. However, its strategic implications for brand manufacturers, gray marketers, and the authorized retailers themselves remain underexplored. This paper investigates the interaction between blockchain adoption by an authorized retailer and the existence of gray markets. Four models are developed to examine scenarios that differ in whether the retailer adopts blockchain technology and whether the gray market exists. The results suggest that the existence of the gray market benefits the brand manufacturer when consumers’ relative preference for the gray market is low or brand reputation is strong, while it consistently undermines the retailer’s profit. Blockchain adoption allows the retailer to partially offset such losses by reducing consumer uncertainty and reinforcing brand reputation. In the absence of gray markets, the adoption has no impact on the retail price in the domestic market but may increase the wholesale price in the foreign market, thus enhancing the manufacturer’s profit. When the gray market exists, the adoption affects the brand manufacturer’s pricing in both markets, contingent on consumers’ perceived discount on brand reputation and the unit usage cost of blockchain. While the adoption tends to suppress the gray market by enhancing transparency, it may inadvertently intensify gray market participation under certain market conditions. The robustness of these findings is validated through several model extensions.