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

Abstract

As awareness of health and environmental issues grows, the demand for organic food is rising worldwide, yet consumers still struggle to distinguish genuine organic products from conventional ones. This information asymmetry creates incentives for some producers to mislabel conventional goods as organic in order to charge higher prices, threatening market integrity and trust. This paper develops a game-theoretic model of interactions among producers, consumers, and regulators in organic supply chains to study when fraud emerges and how it can be deterred. By analyzing extensive-form and repeated games with monitoring and penalties, we identify conditions under which honest labeling becomes a stable equilibrium and show how inspection frequency and reputation losses shape strategic behavior. Our results highlight the critical role of a neutral third party in overcoming information asymmetries and sustaining trust in organic markets. Government regulation and independent certification, combined with credible monitoring and meaningful penalties, discourage mislabeling, and support the sustainable growth of the organic food supply chain.