Supplier-customer interaction in quality control

We develop a game theoretic model of joint quality control in a single sourcing environment which integrates supplier and customer decisions. In this model, both parties behave strategically and take each other's incentives into account when deciding on their respective sampling plans. The specific sampling plans considered are of the “single sample fraction defective with rectifying inspection” type. A method to find the optimal sampling plans for both supplier and customer in two different informational setups is constructed. The resulting models lead to examination of Stackelberg and Nash equilibria. Numerical examples of such equilibria are presented, indicating how optimal strategies depend on the parameters of the problem.