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Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards

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Abstract

In this paper, we construct a supply chain network model with information asymmetry in product quality. The competing, profit-maximizing firms with, possibly, multiple manufacturing plants, which may be located on-shore or off-shore, are aware of the quality of the product that they produce but consumers, at the demand markets, only know the average quality. Such a framework is relevant to products ranging from certain foods to pharmaceuticals. We propose both an equilibrium model and its dynamic counterpart and demonstrate how minimum quality standards can be incorporated. Qualitative results as well as an algorithm are presented, along with convergence results. The numerical examples, accompanied by sensitivity analysis, reveal interesting results and insights for firms, consumers, as well as policy-makers, who impose the minimum quality standards.

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Acknowledgments

This research was supported, in part, by the National Science Foundation (NSF) grant CISE #1111276, for the NeTS: Large: Collaborative Research: Network Innovation Through Choice project awarded to the University of Massachusetts Amherst. This support is gratefully acknowledged. The first author also thanks the organizers of the 10th International Conference on Computational Management Science held on Montreal, Quebec, Canada, May 1–3, 2013 for discussions with participants that led to this work. The authors also thank the Guest Editor of this special issue for the opportunity to publish this work. This paper is dedicated to Professor Berc Rustem to thank him for his highest of standards, dedication, leadership, and vision as a scholar and as the Editor of the journal Computational Management Science over many years.

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Authors and Affiliations

  1. Department of Operations and Information Management, Isenberg School of Management, University of Massachusetts, Amherst, MA , 01003, USA

    Anna Nagurney & Dong Li

  2. School of Business, Economics and Law, University of Gothenburg, Gothenburg, Sweden

    Anna Nagurney

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  1. Anna Nagurney
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  2. Dong Li
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Correspondence to Anna Nagurney.

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Nagurney, A., Li, D. Equilibria and dynamics of supply chain network competition with information asymmetry in quality and minimum quality standards. Comput Manag Sci 11, 285–315 (2014). https://doi.org/10.1007/s10287-014-0216-8

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  • DOI: https://doi.org/10.1007/s10287-014-0216-8

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