A game theoretic framework for analyzing milk supply chain safety and quality

Abstract

This paper investigates a milk supply chain encompassing a milk collection station and a manufacturer. The station acquires milk from farmers, performs quality control to detect non-toxic adulterants, stores, and sells the mixed milk to the manufacturer at wholesale prices. However, the station might introduce toxic additives to enhance product appearance and stimulate demand. The manufacturer further processes the milk and sells it to consumers. In an endeavor to curb both toxic and non-toxic adulterations, the government employs regulatory measures and subsidy schemes. The impact of government regulations on the various segments of the supply chain is analyzed using game theory in this study. Additionally, the study explores the influence of diverse contractual arrangements on decision variables and player profit functions. To this end, four scenarios are analyzed: decentralized structure, cost-sharing contract, safety guarantee contract, and hybrid contract. The findings reveal that intensifying deterrent factors not only enhances product safety but also leads to a reduction in non-toxic adulterations. It is observed that the cost-sharing contract can augment the profitability of all supply chain members. Furthermore, the study concludes that the allocation of inappropriate subsidy levels can induce increased additive usage by members, which contradicts the government's objectives in providing subsidies.