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The global apparel industry is largely characterized by its highly competitive manufacturing base, with a large number of factories located in developing countries, and the existence of significantly fewer downstream buyers with larger commercial capabilities. This dynamic creates a power asymmetry in the industry that favors buyers, which is frequently cited as a cause of dropping prices and ... read moreworsening conditions for workers in the factories. There has been a rise of “reputation-sensitive” buyers that have attempted to improve factory working conditions to avoid bad publicity. Currently, the impact of these reputation-sensitive buyers on the actions of factories is unclear. This thesis uses game theory to model buyer power and reputation sensitivity and how these factors mitigate a factory’s decision between being price-competitive and compliant with labor standards. Three different buyer types are identified based on their degree of reputation sensitivity. Each type’s behavior is impacted by the buyer’s level of power. However, the power of these buyers to manipulate factories may be limited, especially in the case of inducing lower prices. Buyer power also largely does not impact the behavior of the factory, which is instead dictated by factors such as the density of high-efficiency factories in the market.read less
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