Evolutionary Game Analysis on Government Supervision and Dairy Enterprise in the Process of Product Recall in China

Evolutionary Game Analysis on Government Supervision and Dairy Enterprise in the Process of Product Recall in China

Lei Wang (School of Economics and Management, Northeast Agricultural University, Heilongjiang Province, China) and Chang Liu (School of Economics and Management, Northeast Agricultural University, Heilongjiang Province, China)
Copyright: © 2020 |Pages: 23
DOI: 10.4018/IJISSS.2020010104

Abstract

On the basis of stating recall and regulation mode, this paper analyzes long-term evolutionary trend between dairy enterprise and government supervision on bounded rationality with evolutionary game. The authors use Python matplotlib to simulate research results. Studies show that it is helpful to build a standard recall system of defect and dairy products. This system should reduce the costs of government supervision. In addition, in case of mandatory recall, it should strengthen punishment intensity of the government supervision branch on dairy enterprise, increase more losing costs of dairy enterprise, and decrease external environment benefits of dairy enterprise. In case of voluntary recall, the system should encourage various strategies and subsidy of the government supervision branch on dairy enterprise and amplify social influence of dairy enterprise. Especially, the paper puts forward detailed strategies for dairy enterprise.
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Introduction

Recently, product safety incidents have occurred frequently in the world, which definitely hinders healthy industrial development. Enterprises could improve product quality and security by constant technological advance. Meanwhile, they could control and reduce the risk of product safety by constantly intensifying institutional innovation (Zhou, Yan, & Li, 2016). A defective product recall system is an example of innovation that plays an important role in the process of defective product recalling. Particularly in recent years in China, as dairy product safety incidents have occurred continually, the appeal on establishing a defective dairy product recall system has become more and more intense. Hopefully, it could curb the increasingly serious issue of dairy product safety. However, the process for the establishment of a defective dairy product recall system is too slow in China to satisfy consumer demand (Enderwick, 2013). One of the most important reasons lies in the confused relationship between dairy enterprise and government. Indeed, the government has played a very important role in the recall process. The recall of large quantities of dairy products will inevitably bring losses to the economic interests of dairy enterprises. Dairy enterprises are reluctant to take measure of voluntary recall considering cost. However, the government, as the protector of public food safety, can increase the punishment or incentive system for manufacturers through a series of regulatory measures, when they do not want to recall defective dairy products, so as to adjust the cost and benefit balance in the recall of manufacturers and increase the recall probability of dairy companies. Without the government’s effective supervision and management, the asymmetry of information and status between consumers and dairy enterprises cannot be solved, the hidden dangers of dairy products cannot be eliminated, and the consumers’ legitimate rights and interests cannot be guaranteed. As a result, the Chinese government should establish a set of applicable defective dairy product recall systems to maintain consumers’ legal rights and check defective dairy product inflows.

At present, foreign researchers who study food recall mainly focus on laws and regulations of food recall (Meulen & Bernd, 2015), government function positioning (Marian, Andrew, & Julie, 2006), corporate responsibility (Sammer, Erin, & Budin, 2005), internal authority division of regulatory departments (Spencer & Julie, 1999), and system operation (Melvin, Daniel, & Weidner, 2005). Domestic researches who study food recall mainly focus on five aspects, which are definition (Chen, 2007), necessity (Liu & Wang, 2007), operation effect (Lu & Zhang, 2010), improvement measures (Zhang, 2010), and foreign experience introduction (Tang, Zhang, Qi, & Xu, 2010). Few researchers have studied the interaction and profit distribution between enterprises and governments in the process of product recall. In addition, at present, domestic and foreign researchers apply game theory to product recall (Chao, Iravani, & Savaskan, 2009; Umehara & Ohta, 2011). Most researches start from the complete rationality of the game side and find the equilibrium solution under the premise of sufficient information. However, it is difficult for decision-makers to be completely rational. When the social environment and decision-making are complex, the agent’s rational limitations are obvious. Generally speaking, decision-makers’ rational level is relatively low in the process of defective dairy product recall. Other companies will follow enterprises that suffer a few economic losses as a result of mandatory recall under lax government supervision in the market. This is mainly because the government's decision is a group decision, while the company’s behavior is a corporate behavior. At this time, the enterprise has a poor ability to realize mistakes and adjust strategies, and its behavior change is more a slow evolution, rather than a quick learning and adjustment mechanism. In the process of product recall, due to the asymmetry of information and the self-interest of all parties in the game, it is inevitable for all stakeholders to make decisions under the condition of limited rationality.

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