Food Supply Chain Risk Management: A Sequential Game between Retailers and Regulating Government in the face of Strategic Consumers
In food supply chain, the retailers may add some chemical additives to increase the food demand and sales profit, which may cause health problems to the consumers. Government could use punishment policy to deter such risky behavior to reduce society loss. However, government also can benefit from taxing the retailer revenues, which generates a tradeoff to government. In the first part, we apply a discrete non-game theoretic model to analyze the decision making of retailers using influence diagram and decision tree. Then we conduct one-way and two-way sensitivity analysis to find out which factors affect the retailer's final decision. In the second part, we establish continuous game theoretic model to analyze the interactions between retailers and government in the face of strategic consumers. A sequential game model are established by identifying the Subgame Perfect Nash Equilibrium (SPNE) strategies of retailers and government. Our results find all the following four possible cases at equilibrium: (a) positive punishment and chemical amount; (b) positive punishment and zero chemical amount; (c) zero punishment and positive chemical amount; (d) zero punishment and zero chemical amount. This work could provide novel policy insights to government and agency on regulating food supply chain.