Sharing quality information in a dual-supplier network: a game theoretic perspective

Abstract

Abstract We study a two-level supply chain consisting of two competing suppliers and one buyer. Both suppliers experience some level of uncertainty on product quality, which, in turn, leads to additional cost on the buyer's side. We evaluate the benefits of sharing information on suppliers' product quality with the buyer. Specifically, if a supplier shares its quality inspection result of sampled products on an order basis, how should the buyer use this information to reduce quality uncertainty in the products he received? Will quality information sharing benefit the supplier(s) as well? We develop an analytical model to investigate each member's performance with/without quality information sharing. We also develop equilibrium strategies for the suppliers with quality information sharing. Our results show that the buyer always benefits from quality information sharing. From the supplier's perspective, sharing quality information with the buyer impacts its market share. Moreover, whether to share its quality information depends on the supplier's product quality level and price level. Keywords: quality information sharingsupply chain managementquality assurance Acknowledgements This research is partially supported by NSFC (Grant No. 70701037, 70801001, 70801017, 70911140289). The authors are appreciated to the guest editors and anonymous referees for their constructive comments on the earlier manuscript of this paper.