Overstated product sustainability: real cases and a game-theoretical analysis

In this paper, we examine the impact of manufacturers’ dishonest reports of product sustainability. We first investigate the Volkswagen emissions scandal and Wal-Mart fake organic food scandal in terms of the overstatement of product sustainability. Based on these two cases, we construct a two-echelon supply chain model consisting of one manufacturer and one retailer. The supply chain members can use inspections or deferred payments in trading. We find that the inspection and deferred payment mechanisms do not always help reduce the overstatements of sustainability. With the inspection mechanism, when the basic demand is higher (lower) than the threshold, inspections can (cannot) effectively reduce the levels of overstatement. With the deferred payment mechanism, when the manufacturer’s expected proportion of payments is sufficiently small (large), the deferred payments can (cannot) help reduce the levels of overstatement. Moreover, we find that when overstatements are difficult (easy) to identify by the retailer, the deferred payment (inspection) mechanism is the more effective means for the retailer to reduce overstatements. Furthermore, our numerical results indicate that when a third party organization perceives a low probability of product overstatement, the manufacturer and the retailer use neither inspections nor the deferred payment mechanism. In contrast, when a third party organization perceives a high probability of product overstatement, the inspection mechanism is more beneficial to the manufacturer, while the deferred payment is more beneficial to the retailer. The managerial implications of our findings are discussed.