Pricing Decisions of a Supply Chain with Multichannel Retailer under Fairness Concerns

Abstract

With the rapid development of the Internet, many traditional retailers have built their online channels. The fairness concern may play an important role in a dual-channel supply chain with a multichannel retailer. This paper establishes a Stackelberg game model in which a manufacturer produces and sells products through direct online channel and a retailer sells directly to consumers through online and offline channels. The manufacturer’s fairness concern (advantageous inequity) and the retailer’s fairness concern (disadvantageous inequity) are considered. Four scenarios are investigated: no fairness concern (NF), the retailer fairness concern (RF), the manufacturer fairness concern (MF), and both the manufacturer and the retailer fairness concern (MRF). The theoretical analysis shows that if the manufacturer’s advantageous inequity concern is low, the profit of the whole supply chain in the MRF scenario is the greatest. Otherwise, the supply chain profit in the NF or RF scenario is the greatest. That is, the manufacturer’s and the retailer’s fairness concern may increase the profit of the supply chain. This study also finds that the manufacturer’s advantageous inequity concern can increase the social welfare. The retailer should not concern about fairness if the manufacturer has high fairness concern. Besides, this paper shows that the manufacturer’s selling price cannot be affected by the fairness concern. Adjusting the wholesale price is the only thing that the manufacturer can do to reduce disadvantageous or advantageous inequity. In the RF scenario, the role of the retailer’s disadvantageous inequity concern is to reallocate the supply chain profit. Our findings provide some managerial insights on the pricing decision when the multichannel retailer and the manufacturer consider the fairness.

Contract Manufacturer’s Encroachment Strategy considering Fairness Concern in Supply Chain

“…e retailer's fairness concerns about the other retailer is called peer-induced fairness. e retailer's fairness concerns about the manufacturer is called distributional fairness [9]. is paper only considers distributional fairness.…”

“…ey find that channel efficiency falls with retailer's fairness concerns. Zhen et al [9] studied a dual-supply chain in which a manufacturer produces and sells products through direct online channel and a retailer sells directly to consumers through online and offline channels. ey considered four scenarios: no fairness concern, the retailer's fairness concern, the manufacturer' fairness concern, and both the manufacturer and the retailer have fairness concern.…”

“…Following Nie and Du [43], Cui et al [44], and Zhen et al [9], we adopt utility function as the retailer's optimization objection. Fehr and Schmidt [8] state that positive benefit and negative benefit of fairness concerns both cause losses to their utility.…”

“…e objective function of the contract manufacturer does not change, i.e., π AE M � π NE M . α and β denote the disadvantageous inequity and advantageous inequity concern parameters, respectively, where α > β and 0 < β < 1 [9]. If the retailer's profit is lower than the equitable payoff, a disadvantageous inequity occurs, resulting in disutility for the retailer.…”

“…us, an interesting question arises: whether fairness concern influences contract manufacturer's encroachment strategy? Different members may have different fairness concern [9,10]. us, this paper studies four different scenarios of fairness concern: (1) the retailer' fairness concern (scenario A); (2) the contract manufacturer' fairness concern (scenario B); (3) both the manufacturer and the retailer's fairness concern (scenario C); and (4) no fairness concern (scenario N).…”