Quality investment, inspection policy, and pricing decisions in a decentralized supply chain

This paper studies the interaction between two key quality management decisions—input conformance and inspection policy—and related wholesale retail prices in a echelon supply chain. Market demand depends on price as well end-product quality, which itself input scheme. Consistent with previous empirical findings literature, we show that an increase does not always result higher for consumers due to cost-lowering effect of better quality. We also lower may still because how it might incentivize more and/or inspection. Any policy becomes pronounced decentralized system incentive asymmetry channel partners. makes adoption full-inspection likely there compared integrated system. Indeed, while vertical competition decentralization results customers, can end products. Another interesting finding setting is that, somewhat counterintuitively, player indeed opt bear share penalty defective products sold resulting profits player.