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Product quality choice in two-echelon supply chains under post-sale liability: insights from wholesale price contracts

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  • Jianchang Fan
  • Debing Ni
  • Xiaowo Tang

Abstract

This paper considers a two-echelon supply chain consisting of an upstream manufacturer (M) and a downstream Retailer (R) who transact intermediate products via a wholesale price contract. The supply chain provides an experience good to unit-demand consumers. M is liable for the harm caused by its products in a low quality state. A two-stage game model is built to describe how the supply chain operates. With the equilibrium and under certain assumptions, this paper finds that (1) in spite that post-sale product liability positively affects the wholesale price, M’s quality level, the contracted quantity and supply chain members’ profitability are independent of it; (2) when liability-related factors and M’s quality improvement efficiency change, the wholesale price serves as a medium for M and R to mutually share the ex ante expected liability cost, the demand loss caused by the ex ante expected consumer harm and the ex ante quality-improving cost; (3) in response to changes in liability-related factors, the quality performance is in conflict with the financial performance for both M and R, but this conflict disappears in the presence of a change in quality improvement efficiency. Managerial insights are also discussed.

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  • Jianchang Fan & Debing Ni & Xiaowo Tang, 2017. "Product quality choice in two-echelon supply chains under post-sale liability: insights from wholesale price contracts," International Journal of Production Research, Taylor & Francis Journals, vol. 55(9), pages 2556-2574, May.
    • Handle: RePEc:taf:tprsxx:v:55:y:2017:i:9:p:2556-2574
    DOI: 10.1080/00207543.2016.1240382
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    2. Xiaoqin Wen & Chenhanzhi Wang, 2022. "Optimal-Quality Choice and Committed Delivery Time in Build-To-Order Supply Chain," Sustainability, MDPI, vol. 14(18), pages 1-20, September.

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