Transshipments in hazardous environments: Cooperative versus noncooperative quality control game

We address quality control of products undergoing multiple transshipment stages handled by different parties. Depending on the transportation modes, the stages may expose the products to hostile environments, such as extreme temperatures, which could influence quality. We incorporate the effect of quality on demand with the Neyman-Pearson statistical framework to study the effect of intra-competition between supply chain parties on inspection policies and thereby product quality. Specifically, we compare these policies with that of a centralized supply chain, where a single decision maker chooses the optimal inspection policies for all stages. We find that in terms of inspection policy, a party with the higher probability of nonconformance tends to inspect less under competition compared to the system-wide optimal inspection policy. Conversely, the other party may inspect more than under the system-wide optimal policy. We determine when intra-competition impacts conformance quality so that regulations are of particular importance for protecting consumers.