Dynamic joint decisions under potential crisis in a manufacturing supply chain

Defective components may trigger product-harm crises that reduce product goodwill and market demand in a manufacturing supply chain. This study develops a differential game model comprising a supplier and a manufacturer, investigating how the members adjust quality and marketing investments when facing a potential product-harm crisis. A cost-sharing contract between the supply chain members is designed. The results show that the manufacturer prioritizes pre-crisis quality and marketing investment to exploit market growth opportunities under low crisis probability. Conversely, elevated crisis probability prompts the manufacturer to strategically conserve pre-crisis investment, reserving liquidity for post-crisis damage mitigation. In addition, pre-crisis quality investment reduces losses in crisis, so the supplier has an incentive to work with the manufacturer through quality investment cost sharing. However, the manufacturer's cooperation decision is governed by the crisis probability: the cost-sharing contract improves the manufacturer's profitability if and only if the crisis probability is low.