Evolutionary Game Theory Applied to GCSM (Green Supply Chain Management) in China
Researchers Yihui Tian, Kannan Govindan, and Qinghua Zhu created a model representing the Chinese auto industry “supply chain”, the sequence of processes involved in the production and distribution of a commodity, using system dynamics and evolutionary game theory. Taking into account the government, manufacturers, and consumers, the three forces they listed that affect the supply chain, they evaluated the payoffs of manufacturers implementing green supply chain management (a management approach that aims for practices beneficial to the environment and to the bottom line, at the many stages along the supply chain) and those not implementing it. If we consider implementation vs non-implementation as opposing strategies, in which manufacturers compete with other manufacturers following the one of the strategies, payoffs are their respective profits, and manufacturers can change their strategy over time, it makes sense to use evolutionary game theory to predict how manufacturers will behave in certain scenarios. The researchers found, using their model, that subsidies to manufacturers implementing GCSM, rather than consumers, is a better way to promote pro-environment behavior, and that increasing consumer awareness about the environment and the companies that attempt to protect it could be very powerful.
The connection to this course is clear–this is a real world (or rather, research) application of some of the topics we have learned in this course. We have seen game theory is good at modeling many clear-cut, well-defined scenarios, and often holds up when human irrationality is added. It is interesting, and very cool, to see the relatively simple concepts we have learned applied to very complex situations, such as the entire auto industry in China, which must take into account government decisions, consumer decisions, resource availability, competition, and more. This study also demonstrates that it is not just the mathematical model that is important in making real world decisions, but also how that model is applied: it is up to the researchers to decide what factors are important enough to include in the model, as the paper states “one of the limitations is that the influencing factors in this model are relatively simple. There are additional stakeholders who will affect the system of GSCM diffusion, such as media groups and NGOs which can raise the environmental awareness of both manufacturers and consumers”. It is important to remember that while much of the information we learn in class may be proved mathematically, this is only possible with certain assumptions that may not remain true in application, and so we must be mindful of what assumptions we are making when trying to apply what we have learned in class.
http://www.sciencedirect.com/science/article/pii/S0959652614005551