Product safety assessment in a dairy dual-channel supply chain using game theory

In this paper, a supply chain including a farmer, a dairy manufacturer, and consumers is considered in which a particular product is sold through two channels, i.e., formal and informal. In the former, the dairy manufacturer buys the dairy product at a wholesale price from the farmer and sells it to consumers, whereas in the latter, the farmer sells the product directly to consumers. The farmer may add a sort of chemical additive to the product in order to increase its demand in either channel. This may be discovered only if a product safety accident happens. Furthermore, the government, as a regulator, plays an integral role in preventing the production and consumption of contaminated food. We aim to investigate the behavior of players in this supply chain and decide about safety issues and the wholesale price of the product using the game theory approach. To this end, four scenarios, including centralized structure, decentralized structure, cost-sharing contract, and safety guarantee contract, are examined. The experimental results reveal that by enacting appropriate laws, the government can prevent the supply chain players from utilizing unauthorized chemical additives. Furthermore, it is shown that the safety guarantee contract can improve the safety level of the product, which is always at a higher level in the formal channel than in the informal one. It was also revealed that fining the farmer has a greater impact on product safety than fining the manufacturer. Moreover, the farmer has less tendency to use chemical additives when the costs of the product and chemical additives are high or additives pose a high risk to consumers whereas higher product prices tempt the farmer to utilize more additives.