The Impact of Fairness Concerns on the Formation of Retailers Alliance with Consideration of Transshipment

Abstract

This paper investigated the impact of fairness concerns on the formation of the inventory transshipment strategy alliance through its impact on the ordering decisions and profits of two retailers. The paper introduced reference point dependency to describe the retailer’s fairness concerns utility function, and modeled the strategic alliance system consisting of two retailers involved in transshipment. The conditions for the existence of Nash equilibrium solutions were given. The paper solved the impact of the fairness parameters on order quantities and profits by the implicit function theorem. Based on the theoretical analysis and numerical examples, this paper investigated the formation of a strategic alliance under asymmetric and symmetric fairness concerns. The results are as follows: (1) under asymmetric fairness concerns, when the transshipment price of the retailer with no fairness concerns is no more than the transshipment price of the retailer with fairness concerns, an inventory transshipment strategy alliance can be formed. Otherwise the retailer with no fairness concerns may need to pay the retailer with fairness concerns certain fees in order to form a strategic alliance; (2) under symmetric fairness concerns, two completely symmetric retailers can form strategic alliances.