Supply Chain Risk Management: A Game Theoretic Analysis

Abstract

This chapter introduces a game-theoretic approach to supply chain risk management. The focus of this study lies on the risk of a single supply chain member defecting from common supply chain agreements, thereby jeopardizing the overall supply chain performance. The chapter goes on to introduce a manual supply chain game, by which dynamic supply chain mechanisms can be simulated and further analyzed using a game-theoretic model. With the help of the game-theoretic model, externalities are identified that negatively impact supply chain efficiency. The conclusion drawn from this chapter is that incentives are necessary to overcome these externalities in order to align supply chain objectives. The authors show that the game-theoretic model, in connection with the supply chain game presented, provides an informative basis for the future development of incentives by which supply chains can be aligned in order to reduce supply chain risks.