Quality Investment and Regenerative Decisions Under Recall Risk: A Game-Theoretic Approach

In regenerative supply chains, firms can recover losses from defective or recalled products through repair, reuse, and remanufacturing. This paper develops a game-theoretic model to examine how regenerative capability affects supplier quality investment and the original equipment manufacturer’s (OEM’s) pricing and regenerative decisions under recall risk. We model a Stackelberg game in which the OEM determines regenerative investment and pricing, while the supplier chooses product quality. Results reveal a dual effect of regenerative capability: it reduces recall losses and improves operational flexibility but may also weaken supplier quality incentives by softening defect-related penalties, creating a moral hazard effect. We further show that equilibrium decisions depend on market demand effects and liability-sharing mechanisms, with the OEM’s regenerative investment exhibiting a U-shaped relationship with the supplier’s loss-sharing ratio. These findings highlight the importance of coordinating quality prevention and value recovery to support more sustainable and resilient regenerative supply chains under product recall risk.