Game Theory Analysis of Third-Party Regulation in Organic Supply Chains

Abstract: As people become more conscious of their health and the environment, the demand for organic food is expected to increase. However, distinguishing organic products from conventionally produced ones can be hard, creating a problem where producers may have the incentive to label their conventional products as organic to sell them at a higher price. Game theory can help to analyze the strategic interactions between producers and consumers in order to help consumers verifying these claims. Through a game theory analysis approach, this paper provides evidence of the need for a third party to equalize markets and foster trust in organic supply chains. Therefore, government regulation, including regular and random monitoring and certification requirements, plays a crucial role in achieving the desired level of trust and information exchange among supply chain agents, which ultimately determines the growth trajectory of the sector.