The Role of Trust in a Self-Organizing Pharmaceutical Supply Chain Model with Variable Drug Quality and Imperfect Information

Abstract

We present an Agent-Based Model (hereafter ABM) for a pharmaceutical supply chain operating under conditions of weak regulation and imperfect information, exploring the possibility of poor quality medicines and their detection. Our interest is to demonstrate how buyers can learn about the quality of sellers (and their medicines) based on previous successful and unsuccessful transactions, thereby establishing trust over time. Furthermore, this network of trust allows the system itself to evolve to positive outcomes (under some but not all circumstances) by eliminating sellers with low quality products. The ABM we develop assumes that rational and non-corrupt agents (wholesalers, retailers and consumers) learn from experience and adjust their behaviour accordingly. The system itself evolves over time: under some - but not all - circumstances, sellers with low-quality products are progressively eliminated. Three distinct states of the supply chain are observed depending on the importance of trust built up from past experience. The 'dynamic' state is characterised by a low level of trust leading to a continually changing system with new drugs introduced and rejected with little regard to quality. The 'frozen' state arises from high levels of reliance on past experience and locks the supply chain into a suboptimal state. The 'optimising' state has moderate reliance on past experience and leads to the persistence of suppliers with good quality; however, the system is still 'invadable' by better quality drugs. Simulation results show that the state reached by the system depends strongly on the precise way that trust is established: Excessive levels of trust make it impossible for new, improved treatments to be adopted. This highlights the critical need to understand better how personal experience influences consumer behaviour, especially where regulation is weak and for products like medicines whose quality is not readily observable.