October  2013, 9(4): 967-982. doi: 10.3934/jimo.2013.9.967

Channel coordination mechanism with retailers having fairness preference ---An improved quantity discount mechanism

1. 

School of Economics and Mathematics, Southwestern University of Finance and Economics, 610074, Chengdu, China, China, China

Received  November 2012 Revised  June 2013 Published  August 2013

Channel coordination is an optimal state with operation of channel. For achieving channel coordination, we present a quantity discount mechanism based on a fairness preference theory. Game models of the channel discount mechanism are constructed based on the entirely rationality and self-interest. The study shows that as long as the degree of attention (parameters) of retailer to manufacturer's profit and the fairness preference coefficients (parameters) of retailers satisfy certain conditions, channel coordination can be achieved by setting a simple wholesale price and fixed costs. We also discuss the allocation method of channel coordination profit, the allocation method ensure that retailer's profit is equal to the profit of independent decision-making, and manufacturer's profit is raised.
Citation: Chuan Ding, Kaihong Wang, Shaoyong Lai. Channel coordination mechanism with retailers having fairness preference ---An improved quantity discount mechanism. Journal of Industrial & Management Optimization, 2013, 9 (4) : 967-982. doi: 10.3934/jimo.2013.9.967
References:
[1]

K. J. Arrow, Optimal and voluntary income redistribution, in "Economic welfare and the economics of soviet socialism: essays in Honor of Abram Bergson" (ed. Steven Rosenfield), Cambridge University Press, 1981. Google Scholar

[2]

G. E. Bolton, A comparative model of bargaining: theory and evidence, American Economic Review, 81 (1991), 1096-1106. doi: http://www.jstor.org/stable/2006908.  Google Scholar

[3]

L. Caccetta and E. Mardaneh, Joint pricing and production planning for fixed priced multiple products with backorders, Journal of Industrial and Management Optimization, 6 (2010), 123-147. doi: 10.3934/jimo.2010.6.123.  Google Scholar

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G. Charness and M. Rabin, Understanding social preferences with simple tests, Quarterly Journal of Economics, 9 (2002), 151-172. doi: 10.1162/003355302760193904.  Google Scholar

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J. Chen, Analysis on buyers' cooperative strategy under group-buying price mechanism, Journal of Industrial and Management Optimization, 9 (2013), 291-304. doi: 10.3934/jimo.2013.9.291.  Google Scholar

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T. Coughlan, Competition and cooperation in marketing channel choice: theory and application, Marketing Science, 4 (1985), 110-129. doi: 10.1287/mksc.4.2.110.  Google Scholar

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T. H. Cui, J. S. Raju and Z. J. Zhang, Fairness and channel coordination, Management Science, 53 (2007), 1303-1314. doi: 10.1287/mnsc.1060.0697.  Google Scholar

[8]

A. Debruyn and G. E. Bolton, Estimating the influence of fairness on bargaining behavior, Management Science, 54 (2008), 1774-1791. doi: 10.1287/mnsc.1080.0887.  Google Scholar

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S. F. Du, et. al, Supply chain coordination considering fairness concerns, Journal of Management Sciences in China, 13 (2010), 41-48. doi: 10.1504/IJSSS.2011.038931.  Google Scholar

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E. Fehr and K. Schmidt, A theory of fairness, competition and cooperation, Quarterly Journal of Economics, 114 (2002), 817-868. doi: 10.1162/003355399556151.  Google Scholar

[11]

T. H. Ho and J. J Zhang, Designing pricing contracts for boundedly rational customers: Does the framing of the fixed fee Matter?, Management Science, 54 (2008), 686-700. doi: 10.1287/mnsc.1070.0788.  Google Scholar

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B. Holmstrom and P. Milgrom, Aggregation and linearity in the provision of intertemporal incentives, Econometrica, 55 (1987), 303-328. doi: 10.2307/1913238.  Google Scholar

[13]

C. A. Ingene and M. E. Parry, Coordination and manufacturer profit maximization: The multiple retailer channel, Journal of Retailing, 71 (1995), 129-152. doi: 10.1016/0022-4359(95)90004-7.  Google Scholar

[14]

C. A. Ingene and M. E. Parry, Channel coordination when retailers compete, Marketing Science, 14 (1995), 360-377. doi: 10.1287/mksc.14.4.360.  Google Scholar

[15]

A. P. Jeuland and S. M. Shugan, Managing channel profits, Marketing Science, 27 (2008), 52-69. doi: 10.1287/mksc.1070.0342.  Google Scholar

[16]

D. Kahneman, J. L. Knetsch and R. Thaler, Fairness and the assumptions of economics, The Journal of Business, Part 2: The Behavioral Foundations of Economic Theory, 59 (1986), 285-300. doi: 10.1086/296367.  Google Scholar

[17]

E. Katok and V. Pavlov, Fairness in supply chain contracts: A laboratory study, 31 (2013), 137-145. doi: 10.1016/j.jom.2013.01.001.  Google Scholar

[18]

C. H. Loch and Y. Z. Wu, Social preferences and supply chain performance: An experimental study, Management Science, 54 (2008), 1835-1849. doi: 10.1287/mnsc.1080.0910.  Google Scholar

[19]

L. J. Ma, Supply chain analysis with fairness preference, Operations Research and Management Science, 20 (2011), 37-43. doi: 10.3969/j.issn.1007-3221.2011.02.006.  Google Scholar

[20]

T. W. McGuire and R. Staelin, "Channel efficiency, incentive compatibility, transfer pricing and market structure: An equilibrium analysis of channel relationships, research in marketing," in "Research in Marketing: Distribution Channels and Institutions" (eds. L. P. Bucklin and J. M. Carman), Vol. 8, JAI Press, Greenwich, CT, 1986. Google Scholar

[21]

T. W. McGuire and R. Staelin, An industry equilibrium analyses of down stream vertical integration, Marketing Science, 27 (2008), 115-145. doi: 10.1287/mksc.1070.0335.  Google Scholar

[22]

C. Ozgun, Y. H. Chen and J. B. Li, Channel coordination under fairness concerns and nonlinear demand, European Journal of Operational Research, 20 (2010), 1321-1326. doi: 10.1016/j.ejor.2010.07.017.  Google Scholar

[23]

M. Rabin, Incorporating fairness into game theory and economics, American Economic Review, 83 (1993), 1281-1302. doi: 10.2307/2117561.  Google Scholar

[24]

P. A. Samuelson, Altruism as a problem involving group versus individual selection in economics and biology, American Economic Review, 83 (2002), 143-148. doi: http://www.jstor.org/stable/2117655.  Google Scholar

[25]

Sen Amartya, "Moral Codes and Economic Success," Market Capitalism and Moral Values, Elgar: Aldershot, 1995. Google Scholar

[26]

Z.-J. Shen, Integrated supply chain design models: A survey and future research directions, Journal of Industrial and Management Optimization, 3 (2007), 1-27. doi: 10.3934/jimo.2007.3.1.  Google Scholar

[27]

J. Shu and J. Sun, Designing the distribution network for an integrated supply chain, Journal of Industrial and Management Optimization, 2 (2006), 339-349. doi: 10.3934/jimo.2006.2.339.  Google Scholar

[28]

H. Wang, and W. H. Hou, Design of supply chain incentive contracts with fairness preference of the suppliers considered, Logistics Tech, 17 (2010), 44-48. doi: 10.3969/j.issn.1005-152X.2010.17.016.  Google Scholar

[29]

J. Wu, et. al, Supply contract model with service level constraint, Journal of Industrial and Management Optimization, 1 (2005), 275-287. doi: 10.3934/jimo.2005.1.275.  Google Scholar

[30]

W. Xing, et. al, Impact of fairness on strategies in dual-channel supply chain, Systems Engineering-Theory and Practice(in China), 31 (2011), 1250-1256. Google Scholar

[31]

J. L. Zhang, Coordination of supply chain with buyer's promotion, Journal of Industrial and Management Optimization, 3 (2007), 715-726. doi: 10.3934/jimo.2007.3.715.  Google Scholar

[32]

J. L. Zhang and J. Chen, Externality of contracts on supply chains with two suppliers and a common retailer, Journal of Industrial and Management Optimization, 6 (2010), 795-810. doi: 10.3934/jimo.2010.6.795.  Google Scholar

[33]

Y. T. Zhu, "Channel Conflict," (in China) Management Press, 2004. Google Scholar

[34]

H. X. Zhu, Household electrical industry channel conflict and its resolution- Analysis based on the Green Electric, (in China) Jiangsu Commercial Forum, 7 (2010), 14-16. Google Scholar

show all references

References:
[1]

K. J. Arrow, Optimal and voluntary income redistribution, in "Economic welfare and the economics of soviet socialism: essays in Honor of Abram Bergson" (ed. Steven Rosenfield), Cambridge University Press, 1981. Google Scholar

[2]

G. E. Bolton, A comparative model of bargaining: theory and evidence, American Economic Review, 81 (1991), 1096-1106. doi: http://www.jstor.org/stable/2006908.  Google Scholar

[3]

L. Caccetta and E. Mardaneh, Joint pricing and production planning for fixed priced multiple products with backorders, Journal of Industrial and Management Optimization, 6 (2010), 123-147. doi: 10.3934/jimo.2010.6.123.  Google Scholar

[4]

G. Charness and M. Rabin, Understanding social preferences with simple tests, Quarterly Journal of Economics, 9 (2002), 151-172. doi: 10.1162/003355302760193904.  Google Scholar

[5]

J. Chen, Analysis on buyers' cooperative strategy under group-buying price mechanism, Journal of Industrial and Management Optimization, 9 (2013), 291-304. doi: 10.3934/jimo.2013.9.291.  Google Scholar

[6]

T. Coughlan, Competition and cooperation in marketing channel choice: theory and application, Marketing Science, 4 (1985), 110-129. doi: 10.1287/mksc.4.2.110.  Google Scholar

[7]

T. H. Cui, J. S. Raju and Z. J. Zhang, Fairness and channel coordination, Management Science, 53 (2007), 1303-1314. doi: 10.1287/mnsc.1060.0697.  Google Scholar

[8]

A. Debruyn and G. E. Bolton, Estimating the influence of fairness on bargaining behavior, Management Science, 54 (2008), 1774-1791. doi: 10.1287/mnsc.1080.0887.  Google Scholar

[9]

S. F. Du, et. al, Supply chain coordination considering fairness concerns, Journal of Management Sciences in China, 13 (2010), 41-48. doi: 10.1504/IJSSS.2011.038931.  Google Scholar

[10]

E. Fehr and K. Schmidt, A theory of fairness, competition and cooperation, Quarterly Journal of Economics, 114 (2002), 817-868. doi: 10.1162/003355399556151.  Google Scholar

[11]

T. H. Ho and J. J Zhang, Designing pricing contracts for boundedly rational customers: Does the framing of the fixed fee Matter?, Management Science, 54 (2008), 686-700. doi: 10.1287/mnsc.1070.0788.  Google Scholar

[12]

B. Holmstrom and P. Milgrom, Aggregation and linearity in the provision of intertemporal incentives, Econometrica, 55 (1987), 303-328. doi: 10.2307/1913238.  Google Scholar

[13]

C. A. Ingene and M. E. Parry, Coordination and manufacturer profit maximization: The multiple retailer channel, Journal of Retailing, 71 (1995), 129-152. doi: 10.1016/0022-4359(95)90004-7.  Google Scholar

[14]

C. A. Ingene and M. E. Parry, Channel coordination when retailers compete, Marketing Science, 14 (1995), 360-377. doi: 10.1287/mksc.14.4.360.  Google Scholar

[15]

A. P. Jeuland and S. M. Shugan, Managing channel profits, Marketing Science, 27 (2008), 52-69. doi: 10.1287/mksc.1070.0342.  Google Scholar

[16]

D. Kahneman, J. L. Knetsch and R. Thaler, Fairness and the assumptions of economics, The Journal of Business, Part 2: The Behavioral Foundations of Economic Theory, 59 (1986), 285-300. doi: 10.1086/296367.  Google Scholar

[17]

E. Katok and V. Pavlov, Fairness in supply chain contracts: A laboratory study, 31 (2013), 137-145. doi: 10.1016/j.jom.2013.01.001.  Google Scholar

[18]

C. H. Loch and Y. Z. Wu, Social preferences and supply chain performance: An experimental study, Management Science, 54 (2008), 1835-1849. doi: 10.1287/mnsc.1080.0910.  Google Scholar

[19]

L. J. Ma, Supply chain analysis with fairness preference, Operations Research and Management Science, 20 (2011), 37-43. doi: 10.3969/j.issn.1007-3221.2011.02.006.  Google Scholar

[20]

T. W. McGuire and R. Staelin, "Channel efficiency, incentive compatibility, transfer pricing and market structure: An equilibrium analysis of channel relationships, research in marketing," in "Research in Marketing: Distribution Channels and Institutions" (eds. L. P. Bucklin and J. M. Carman), Vol. 8, JAI Press, Greenwich, CT, 1986. Google Scholar

[21]

T. W. McGuire and R. Staelin, An industry equilibrium analyses of down stream vertical integration, Marketing Science, 27 (2008), 115-145. doi: 10.1287/mksc.1070.0335.  Google Scholar

[22]

C. Ozgun, Y. H. Chen and J. B. Li, Channel coordination under fairness concerns and nonlinear demand, European Journal of Operational Research, 20 (2010), 1321-1326. doi: 10.1016/j.ejor.2010.07.017.  Google Scholar

[23]

M. Rabin, Incorporating fairness into game theory and economics, American Economic Review, 83 (1993), 1281-1302. doi: 10.2307/2117561.  Google Scholar

[24]

P. A. Samuelson, Altruism as a problem involving group versus individual selection in economics and biology, American Economic Review, 83 (2002), 143-148. doi: http://www.jstor.org/stable/2117655.  Google Scholar

[25]

Sen Amartya, "Moral Codes and Economic Success," Market Capitalism and Moral Values, Elgar: Aldershot, 1995. Google Scholar

[26]

Z.-J. Shen, Integrated supply chain design models: A survey and future research directions, Journal of Industrial and Management Optimization, 3 (2007), 1-27. doi: 10.3934/jimo.2007.3.1.  Google Scholar

[27]

J. Shu and J. Sun, Designing the distribution network for an integrated supply chain, Journal of Industrial and Management Optimization, 2 (2006), 339-349. doi: 10.3934/jimo.2006.2.339.  Google Scholar

[28]

H. Wang, and W. H. Hou, Design of supply chain incentive contracts with fairness preference of the suppliers considered, Logistics Tech, 17 (2010), 44-48. doi: 10.3969/j.issn.1005-152X.2010.17.016.  Google Scholar

[29]

J. Wu, et. al, Supply contract model with service level constraint, Journal of Industrial and Management Optimization, 1 (2005), 275-287. doi: 10.3934/jimo.2005.1.275.  Google Scholar

[30]

W. Xing, et. al, Impact of fairness on strategies in dual-channel supply chain, Systems Engineering-Theory and Practice(in China), 31 (2011), 1250-1256. Google Scholar

[31]

J. L. Zhang, Coordination of supply chain with buyer's promotion, Journal of Industrial and Management Optimization, 3 (2007), 715-726. doi: 10.3934/jimo.2007.3.715.  Google Scholar

[32]

J. L. Zhang and J. Chen, Externality of contracts on supply chains with two suppliers and a common retailer, Journal of Industrial and Management Optimization, 6 (2010), 795-810. doi: 10.3934/jimo.2010.6.795.  Google Scholar

[33]

Y. T. Zhu, "Channel Conflict," (in China) Management Press, 2004. Google Scholar

[34]

H. X. Zhu, Household electrical industry channel conflict and its resolution- Analysis based on the Green Electric, (in China) Jiangsu Commercial Forum, 7 (2010), 14-16. Google Scholar

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