A Pricing Strategy to Align Supply Chain Interests for Product Recall

Traceability systems are regarded as an effective way to address product recalls. It cannot work effectively without the participation of all the chain members. However, the incentives in the supply chain are not naturally aligned, and may need interest-alignment mechanism to motivate the chain members to participate. This paper thus proposes a pricing strategy to avoid free-rider problems by correcting the liability misallocation, therefore aligning the supply chain interests to improve traceability. The trade-offs between the associated benefits and costs of improving traceability are investigated, in order to design a cost-effective traceability system. Moreover, how to better manage product recall by incorporating new technology, such as RFID, and the conditions that are conducive to its adoption are investigated.