Yield and control in a supplier-customer relationship

This paper considers the problem of yield production and the mutual sampling policies of a supplier and a customer. It is assumed that the parties do not cooperate and construct a random payoff game where, in addition to sampling, the supplier may choose a yield (a function of the production technology). Given binding contract parameters between the customer and the supplier, a solution of the game, which assumes risk neutrality, is shown to lead to two equilibria. These equilibria are discussed and contrasted with current approaches in the application of quality assurance inspection plans. Finally, yield optimization by the supplier in each of the equilibria will lead to the selection of a unique solution which will induce the customer not to sample at all or sample with a probability given in terms of the contract parameters of the problem.