Game-theoretic analysis of the quality assurance problem in a two-echelon supply chain with a retailer as the quality gatekeeper

  • Zaichen LI

Student thesis: MPhil Thesis (Lingnan)


We consider a two-level supply chain involving a manufacturer and a retailer who serves as the quality gatekeeper. The manufacturer determines a wholesale price and a defective rate and announces his decisions to the retailer, who then makes her decisions on the retail price and identification rate that means the percent- age of the defects identified by the retailer and reflects the retailer’s gatekeeping effort on her quality assurance. We accordingly develop a leader-follower game and solve it to find Stackelberg equilibrium for the manufacturer and the retailer. In order to examine whether or not the supply chain benefits from the retailer's quality gatekeeping effort, we also develop and solve another leader-follower game where the manufacturer still announces its wholesale pricing and defective rate decisions but the retailer only decides on the retail price. We show that the manufacturer’s equilibrium defective rate for the game with the retailers gate-keeping is higher than that for the game without the retailer’s gatekeeping. The ratio of the manufacturers profit to the retailer’s profit is increased when the retailer serves as the gatekeeper. Moreover, the retailer reduces her price when she acts as the gatekeeper, if and only if the supply chain-wide cost decreases as a result of the retailer’s gatekeeping effort. We also perform sensitivity analysis of each parameter in our game models to further examine the impacts of the retailer’s gatekeeping on the manufacturer’s and the retailer’s decisions and profits. We find that the retailer’s penalty cost per defect has more significant impacts than the manufacturer’s unit penalty cost. The paper ends with a summary of managerial insights.
Date of Award2012
Original languageEnglish
Awarding Institution
  • Department of Computing and Decision Sciences
SupervisorMingming LENG (Supervisor) & Li Ping LIANG (Supervisor)

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