July  2017, 13(3): 1347-1364. doi: 10.3934/jimo.2016076

Fairness and retailer-led supply chain coordination under two different degrees of trust

1. 

Applied Economics Postdoctoral Research Station, Business School, Guangxi University, Nanning, Guangxi, 530004, China

2. 

School of Economics and Business Administration, Chongqing University, Chongqing 400030, China

* Corresponding author

Received  September 2014 Revised  August 2016 Published  October 2016

Fund Project: The authors are partially supported by NSF grant 71571024 and the humanities and social sciences research program of the Ministry of Education (15YJA630058, 14YJA630087). The first author is partially supported by Guangxi Postdoctoral Special Funding Project

Nowadays, customers are the decisive part in the market. The retailers who are closest to final consumers in a supply chain begin to show their power and thereby dominate the supply chain. Thus, the research about a retailer-led supply chain continues to be a burning question in the recent trade press and academic literature. Our research adds fresh fuel to the fire by studying how one channel member' fairness concern affects the coordination of a two-stage supply chain with a dominant retailer and a supplier. We carry out our investigation in two cases which involve different degrees of trust between the channel members about the unit cost $c$ provided by the supplier. Our analysis shows that if the channel members have the same degree of trust on $c$-value, the dominant retailer can use a constant markup pricing contract to align the fair-minded supplier's interest with the channel's and coordinate the channel with a wholesale price higher than the supplier's marginal cost; but the coordination fails if the dominant retailer is the only one who cares about fairness, and he obtains a lower profit than nobody cares about fairness. If the dominant retailer and the supplier have different degrees of trust on $c$-value, the retailer can not coordinate the channel with a markup pricing contract when only the supplier has fairness concerns.

Citation: Huimin Liu, Hui Yu. Fairness and retailer-led supply chain coordination under two different degrees of trust. Journal of Industrial & Management Optimization, 2017, 13 (3) : 1347-1364. doi: 10.3934/jimo.2016076
References:
[1]

E Anderson and S. D. Jap, The dark side of close relationships, MIT Sloan Management Review, 46 (2005), 75-82. Google Scholar

[2]

O. Caliskan-DemiragY. F. Chen and J. Li, Channel coordination under fairness concerns and nonlinear demand, European Journal of Operational Research, 207 (2010), 1321-1326. doi: 10.1016/j.ejor.2010.07.017. Google Scholar

[3]

S. C. Choi, Price competition in a channel structure with a common retailer, Marketing Science, 10 (1991), 271-296. doi: 10.1287/mksc.10.4.271. Google Scholar

[4]

P. N. Bloom and V. G. Perry, Retailer power and supplier welfare: The case of Wal-Mart, Journal of Retailing, 77 (2001), 379-396. doi: 10.1016/S0022-4359(01)00048-3. Google Scholar

[5]

M. C. Campbell, Perceptions of price unfairness: Antecedents and consequences, Journal of Marketing Research, 36 (1999), 187-199. doi: 10.2307/3152092. Google Scholar

[6]

K. Chen and T. Xiao, Demand disruption and coordination of the supply chain with a dominant retailer, European Journal of Operational Research, 197 (2009), 225-234. doi: 10.1016/j.ejor.2008.06.006. Google Scholar

[7]

K. Chen and P. Zhuang, Disruption management for a dominant retailer with constant demand-stimulating service cost, Computers & Industrial Engineering, 61 (2011), 936-946. doi: 10.1016/j.cie.2011.06.006. Google Scholar

[8]

T. Y. Choi and Z. Wu, Triads in supply networks: Theorizing buyer-supplier-supplier relationships, Journal of Supply Chain Management, 45 (2009), 8-25. doi: 10.1111/j.1745-493X.2009.03151.x. Google Scholar

[9]

T. H. CuiJ. S. Raju and Z. J. Zhang, Fairness and channel coordination, Management Science, 53 (2007), 1303-1314. Google Scholar

[10]

A. DukesT. Geylani and Y. Liu, Dominant retailers' incentives for product quality in asymmetric distribution channels, Marketing Letters, 25 (2014), 93-107. doi: 10.1007/s11002-013-9245-2. Google Scholar

[11]

G. Ertek and P. M. Griffin, Supplier-and buyer-driven channels in a two-stage supply chain, IIE Transactions, 34 (2002), 691-700. doi: 10.1080/07408170208928905. Google Scholar

[12]

E. Fehr and K. M. Schmidt, A theory of fairness, competition, and cooperation, The quarterly journal of economics, 114 (1999), 817-868. Google Scholar

[13]

A. Georgiades, Wal-Mart Canada, Lego pull apart over price tiff, Wall Street Journal(eastern edition), , 2008.Google Scholar

[14]

T. GeylaniA. J. Dukes and K. Srinivasan, Strategic manufacturer response to a dominant retailer, Marketing Science, 26 (2007), 164-178. doi: 10.1287/mksc.1060.0239. Google Scholar

[15]

T. H. HoX Su and Y. Wu, Distributional and peer-induced fairness in supply chain contract design, Production and Operations Management, 23 (2014), 161-175. Google Scholar

[16]

G. Iyer and J. M. Villas-Boas, A bargaining theory of distribution channels, Journal of Marketing Research, 40 (2003), 80-100. doi: 10.1509/jmkr.40.1.80.19134. Google Scholar

[17]

D. KahnemanJ. L. Knetsch and R. Thaler, Fairness as a constraint on profit seeking: Entitlements in the marke, The American Economic Review, (1986), 728-741. Google Scholar

[18]

S. Kolay and G. Shaffer, Contract design with a dominant retailer and a competitive fringe, Management Science, 59 (2013), 2111-2116. doi: 10.1287/mnsc.1120.1677. Google Scholar

[19]

N. KumarL. K. Scheer and J. B. E. M. Steenkamp, The effects of supplier fairness on vulnerable resellers, Journal of Marketing Research, 32 (1995), 54-65. doi: 10.2307/3152110. Google Scholar

[20]

A. LauH. Lau and J. Wang, Pricing and volume discounting for a dominant retailer with uncertain manufacturing cost information, European Journal of Operational Research, 183 (2007), 848-870. doi: 10.1016/j.ejor.2006.10.017. Google Scholar

[21]

A. LauH. Lau and J. Wang, How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand, European Journal of Operational Research, 190 (2008), 443-458. doi: 10.1016/j.ejor.2007.06.042. Google Scholar

[22]

Y. LiuY. HuangY. Luo and Y. Zhao, How does justice matter in achieving buyer-supplier relationship performance?, Journal of Operations Management, 30 (2012), 355-367. doi: 10.1016/j.jom.2012.03.003. Google Scholar

[23]

R. NarasimhanS. Narayanan and R. Srinivasan, An Investigation of Justice in supply chain relationships and their performance impact, Journal of Operations Management, 31 (2013), 236-247. doi: 10.1016/j.jom.2013.05.001. Google Scholar

[24]

R. L. Oliver and J. E. Swan, Equity and disconfirmation perceptions as influences on merchant and product satisfaction, Journal of Consumer Research, 16 (1989), 372-383. doi: 10.1086/209223. Google Scholar

[25]

K. PanK. K. LaiL. Liang and S. C. H. Leung, Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty, Omega, 37 (2009), 919-929. doi: 10.1016/j.omega.2008.08.002. Google Scholar

[26]

K. PanK. K. LaiS. C. H. Leung and D. Xiao, Revenue-sharing versus wholesale price mechanisms under different channel power structures, European Journal of Operational Research, 203 (2010), 532-538. doi: 10.1016/j.ejor.2009.08.010. Google Scholar

[27]

V. Pavlov and E. Katok, Fairness and Coordination Failures in Supply Chain Contracts working paper, 2009. doi: 10.2139/ssrn.2623821. Google Scholar

[28]

J. Raju and Z. J. Zhang, Channel coordination in the presence of a dominant retailer, Marketing Science, 24 (2005), 254-262. doi: 10.1287/mksc.1040.0081. Google Scholar

[29]

C. Rossetti and T. Y. Choi, On the dark side of strategic sourcing: Experiences from the aerospace industry, The Academy of Management Executive, 19 (2005), 46-60. doi: 10.5465/AME.2005.15841951. Google Scholar

[30]

Y. Shi and J. Zhu, Game-theoretic analysisi for a supply chain with distributional and peer-induced fairness concerned retailers, Management Science and Engineering, 8 (2014), 78-84. Google Scholar

[31]

X. Wang and L. Liu, Coordination in a retailer-led supply chain through option contract, International Journal of Production Economics, 110 (2007), 115-127. doi: 10.1016/j.ijpe.2007.02.022. Google Scholar

[32]

K. WangJ. SunL. Liang and X. Li, Optimal contracts and the manufacturer's pricing strategies in a supply chain with an inequity-averse retailer, Central European Journal of Operations Research, 24 (2016), 107-125. doi: 10.1007/s10100-013-0335-2. Google Scholar

[33]

J. C. WangA. M. Wang and Y. Y. Wang, Markup pricing strategies between a dominant retailer and competitive manufacturers, Computers & Industrial Engineering, 64 (2013), 235-246. doi: 10.1016/j.cie.2012.09.009. Google Scholar

[34]

R. YanC. A. Myers and J. Wang, Price strategy, information sharing, and firm performance in a market channel with a dominant retailer, Journal of Product & Brand Management, 21 (2012), 475-485. Google Scholar

[35]

J. YangJ. XieX. Deng and H Xiong, Cooperative advertising in a distribution channel with fairness concerns, European Journal of Operational Research, 227 (2013), 401-407. doi: 10.1016/j.ejor.2012.12.011. Google Scholar

show all references

References:
[1]

E Anderson and S. D. Jap, The dark side of close relationships, MIT Sloan Management Review, 46 (2005), 75-82. Google Scholar

[2]

O. Caliskan-DemiragY. F. Chen and J. Li, Channel coordination under fairness concerns and nonlinear demand, European Journal of Operational Research, 207 (2010), 1321-1326. doi: 10.1016/j.ejor.2010.07.017. Google Scholar

[3]

S. C. Choi, Price competition in a channel structure with a common retailer, Marketing Science, 10 (1991), 271-296. doi: 10.1287/mksc.10.4.271. Google Scholar

[4]

P. N. Bloom and V. G. Perry, Retailer power and supplier welfare: The case of Wal-Mart, Journal of Retailing, 77 (2001), 379-396. doi: 10.1016/S0022-4359(01)00048-3. Google Scholar

[5]

M. C. Campbell, Perceptions of price unfairness: Antecedents and consequences, Journal of Marketing Research, 36 (1999), 187-199. doi: 10.2307/3152092. Google Scholar

[6]

K. Chen and T. Xiao, Demand disruption and coordination of the supply chain with a dominant retailer, European Journal of Operational Research, 197 (2009), 225-234. doi: 10.1016/j.ejor.2008.06.006. Google Scholar

[7]

K. Chen and P. Zhuang, Disruption management for a dominant retailer with constant demand-stimulating service cost, Computers & Industrial Engineering, 61 (2011), 936-946. doi: 10.1016/j.cie.2011.06.006. Google Scholar

[8]

T. Y. Choi and Z. Wu, Triads in supply networks: Theorizing buyer-supplier-supplier relationships, Journal of Supply Chain Management, 45 (2009), 8-25. doi: 10.1111/j.1745-493X.2009.03151.x. Google Scholar

[9]

T. H. CuiJ. S. Raju and Z. J. Zhang, Fairness and channel coordination, Management Science, 53 (2007), 1303-1314. Google Scholar

[10]

A. DukesT. Geylani and Y. Liu, Dominant retailers' incentives for product quality in asymmetric distribution channels, Marketing Letters, 25 (2014), 93-107. doi: 10.1007/s11002-013-9245-2. Google Scholar

[11]

G. Ertek and P. M. Griffin, Supplier-and buyer-driven channels in a two-stage supply chain, IIE Transactions, 34 (2002), 691-700. doi: 10.1080/07408170208928905. Google Scholar

[12]

E. Fehr and K. M. Schmidt, A theory of fairness, competition, and cooperation, The quarterly journal of economics, 114 (1999), 817-868. Google Scholar

[13]

A. Georgiades, Wal-Mart Canada, Lego pull apart over price tiff, Wall Street Journal(eastern edition), , 2008.Google Scholar

[14]

T. GeylaniA. J. Dukes and K. Srinivasan, Strategic manufacturer response to a dominant retailer, Marketing Science, 26 (2007), 164-178. doi: 10.1287/mksc.1060.0239. Google Scholar

[15]

T. H. HoX Su and Y. Wu, Distributional and peer-induced fairness in supply chain contract design, Production and Operations Management, 23 (2014), 161-175. Google Scholar

[16]

G. Iyer and J. M. Villas-Boas, A bargaining theory of distribution channels, Journal of Marketing Research, 40 (2003), 80-100. doi: 10.1509/jmkr.40.1.80.19134. Google Scholar

[17]

D. KahnemanJ. L. Knetsch and R. Thaler, Fairness as a constraint on profit seeking: Entitlements in the marke, The American Economic Review, (1986), 728-741. Google Scholar

[18]

S. Kolay and G. Shaffer, Contract design with a dominant retailer and a competitive fringe, Management Science, 59 (2013), 2111-2116. doi: 10.1287/mnsc.1120.1677. Google Scholar

[19]

N. KumarL. K. Scheer and J. B. E. M. Steenkamp, The effects of supplier fairness on vulnerable resellers, Journal of Marketing Research, 32 (1995), 54-65. doi: 10.2307/3152110. Google Scholar

[20]

A. LauH. Lau and J. Wang, Pricing and volume discounting for a dominant retailer with uncertain manufacturing cost information, European Journal of Operational Research, 183 (2007), 848-870. doi: 10.1016/j.ejor.2006.10.017. Google Scholar

[21]

A. LauH. Lau and J. Wang, How a dominant retailer might design a purchase contract for a newsvendor-type product with price-sensitive demand, European Journal of Operational Research, 190 (2008), 443-458. doi: 10.1016/j.ejor.2007.06.042. Google Scholar

[22]

Y. LiuY. HuangY. Luo and Y. Zhao, How does justice matter in achieving buyer-supplier relationship performance?, Journal of Operations Management, 30 (2012), 355-367. doi: 10.1016/j.jom.2012.03.003. Google Scholar

[23]

R. NarasimhanS. Narayanan and R. Srinivasan, An Investigation of Justice in supply chain relationships and their performance impact, Journal of Operations Management, 31 (2013), 236-247. doi: 10.1016/j.jom.2013.05.001. Google Scholar

[24]

R. L. Oliver and J. E. Swan, Equity and disconfirmation perceptions as influences on merchant and product satisfaction, Journal of Consumer Research, 16 (1989), 372-383. doi: 10.1086/209223. Google Scholar

[25]

K. PanK. K. LaiL. Liang and S. C. H. Leung, Two-period pricing and ordering policy for the dominant retailer in a two-echelon supply chain with demand uncertainty, Omega, 37 (2009), 919-929. doi: 10.1016/j.omega.2008.08.002. Google Scholar

[26]

K. PanK. K. LaiS. C. H. Leung and D. Xiao, Revenue-sharing versus wholesale price mechanisms under different channel power structures, European Journal of Operational Research, 203 (2010), 532-538. doi: 10.1016/j.ejor.2009.08.010. Google Scholar

[27]

V. Pavlov and E. Katok, Fairness and Coordination Failures in Supply Chain Contracts working paper, 2009. doi: 10.2139/ssrn.2623821. Google Scholar

[28]

J. Raju and Z. J. Zhang, Channel coordination in the presence of a dominant retailer, Marketing Science, 24 (2005), 254-262. doi: 10.1287/mksc.1040.0081. Google Scholar

[29]

C. Rossetti and T. Y. Choi, On the dark side of strategic sourcing: Experiences from the aerospace industry, The Academy of Management Executive, 19 (2005), 46-60. doi: 10.5465/AME.2005.15841951. Google Scholar

[30]

Y. Shi and J. Zhu, Game-theoretic analysisi for a supply chain with distributional and peer-induced fairness concerned retailers, Management Science and Engineering, 8 (2014), 78-84. Google Scholar

[31]

X. Wang and L. Liu, Coordination in a retailer-led supply chain through option contract, International Journal of Production Economics, 110 (2007), 115-127. doi: 10.1016/j.ijpe.2007.02.022. Google Scholar

[32]

K. WangJ. SunL. Liang and X. Li, Optimal contracts and the manufacturer's pricing strategies in a supply chain with an inequity-averse retailer, Central European Journal of Operations Research, 24 (2016), 107-125. doi: 10.1007/s10100-013-0335-2. Google Scholar

[33]

J. C. WangA. M. Wang and Y. Y. Wang, Markup pricing strategies between a dominant retailer and competitive manufacturers, Computers & Industrial Engineering, 64 (2013), 235-246. doi: 10.1016/j.cie.2012.09.009. Google Scholar

[34]

R. YanC. A. Myers and J. Wang, Price strategy, information sharing, and firm performance in a market channel with a dominant retailer, Journal of Product & Brand Management, 21 (2012), 475-485. Google Scholar

[35]

J. YangJ. XieX. Deng and H Xiong, Cooperative advertising in a distribution channel with fairness concerns, European Journal of Operational Research, 227 (2013), 401-407. doi: 10.1016/j.ejor.2012.12.011. Google Scholar

Figure 1.  The effect of $\gamma_s$ on prices
Figure 2.  The effect of $\gamma_s$ on profit(utility)
Figure 3.  The effect of $\alpha_s$ on prices
Figure 4.  The effect of $\alpha_s$ on profit(utility)
Figure 5.  The effect of $\beta_s$ on prices
Figure 6.  The effect of $\beta_s$ on profit(utility)
Figure 7.  The effect of $\gamma_r$ on prices
Figure 8.  The effect of $\gamma_r$ on profit(utility)
Figure 9.  The effect of $\alpha_r$ on prices
Figure 10.  The effect of $\alpha_r$ on profit(utility)
Figure 11.  The effect of $\beta_r$ on prices
Figure 12.  The effect of $\beta_r$ on profit(utility)
Figure 13.  The effect of $\mu$ on prices
Figure 14.  The effect of $\mu$ on profit(utility)
[1]

Kebing Chen, Tiaojun Xiao. Reordering policy and coordination of a supply chain with a loss-averse retailer. Journal of Industrial & Management Optimization, 2013, 9 (4) : 827-853. doi: 10.3934/jimo.2013.9.827

[2]

Juliang Zhang. Coordination of supply chain with buyer's promotion. Journal of Industrial & Management Optimization, 2007, 3 (4) : 715-726. doi: 10.3934/jimo.2007.3.715

[3]

Na Song, Ximin Huang, Yue Xie, Wai-Ki Ching, Tak-Kuen Siu. Impact of reorder option in supply chain coordination. Journal of Industrial & Management Optimization, 2017, 13 (1) : 449-475. doi: 10.3934/jimo.2016026

[4]

Jun Pei, Panos M. Pardalos, Xinbao Liu, Wenjuan Fan, Shanlin Yang, Ling Wang. Coordination of production and transportation in supply chain scheduling. Journal of Industrial & Management Optimization, 2015, 11 (2) : 399-419. doi: 10.3934/jimo.2015.11.399

[5]

Nina Yan, Baowen Sun. Comparative analysis of supply chain financing strategies between different financing modes. Journal of Industrial & Management Optimization, 2015, 11 (4) : 1073-1087. doi: 10.3934/jimo.2015.11.1073

[6]

Wenbin Wang, Peng Zhang, Junfei Ding, Jian Li, Hao Sun, Lingyun He. Closed-loop supply chain network equilibrium model with retailer-collection under legislation. Journal of Industrial & Management Optimization, 2019, 15 (1) : 199-219. doi: 10.3934/jimo.2018039

[7]

Ata Allah Taleizadeh, Leopoldo Eduardo Cárdenas-Barrón, Roya Sohani. Coordinating the supplier-retailer supply chain under noise effect with bundling and inventory strategies. Journal of Industrial & Management Optimization, 2019, 15 (4) : 1701-1727. doi: 10.3934/jimo.2018118

[8]

Honglin Yang, Qiang Yan, Hong Wan, Wenyan Zhuo. Bargaining equilibrium in a two-echelon supply chain with a capital-constrained retailer. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-18. doi: 10.3934/jimo.2019077

[9]

Ali Naimi Sadigh, S. Kamal Chaharsooghi, Majid Sheikhmohammady. A game theoretic approach to coordination of pricing, advertising, and inventory decisions in a competitive supply chain. Journal of Industrial & Management Optimization, 2016, 12 (1) : 337-355. doi: 10.3934/jimo.2016.12.337

[10]

Fuyou Huang, Juan He, Jian Wang. Coordination of VMI supply chain with a loss-averse manufacturer under quality-dependency and marketing-dependency. Journal of Industrial & Management Optimization, 2019, 15 (4) : 1753-1772. doi: 10.3934/jimo.2018121

[11]

Nina Yan, Tingting Tong, Hongyan Dai. Capital-constrained supply chain with multiple decision attributes: Decision optimization and coordination analysis. Journal of Industrial & Management Optimization, 2019, 15 (4) : 1831-1856. doi: 10.3934/jimo.2018125

[12]

Masoud Mohammadzadeh, Alireza Arshadi Khamseh, Mohammad Mohammadi. A multi-objective integrated model for closed-loop supply chain configuration and supplier selection considering uncertain demand and different performance levels. Journal of Industrial & Management Optimization, 2017, 13 (2) : 1041-1064. doi: 10.3934/jimo.2016061

[13]

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

[14]

Juliang Zhang, Jian Chen. Externality of contracts on supply chains with two suppliers and a common retailer. Journal of Industrial & Management Optimization, 2010, 6 (4) : 795-810. doi: 10.3934/jimo.2010.6.795

[15]

Jing Shi, Tiaojun Xiao. Store assistance and coordination of supply chains facing consumer's return. Journal of Industrial & Management Optimization, 2016, 12 (3) : 991-1007. doi: 10.3934/jimo.2016.12.991

[16]

Juliang Zhang, Jian Chen. Information sharing in a make-to-stock supply chain. Journal of Industrial & Management Optimization, 2014, 10 (4) : 1169-1189. doi: 10.3934/jimo.2014.10.1169

[17]

Yeong-Cheng Liou, Siegfried Schaible, Jen-Chih Yao. Supply chain inventory management via a Stackelberg equilibrium. Journal of Industrial & Management Optimization, 2006, 2 (1) : 81-94. doi: 10.3934/jimo.2006.2.81

[18]

Liping Zhang. A nonlinear complementarity model for supply chain network equilibrium. Journal of Industrial & Management Optimization, 2007, 3 (4) : 727-737. doi: 10.3934/jimo.2007.3.727

[19]

Joseph Geunes, Panos M. Pardalos. Introduction to the Special Issue on Supply Chain Optimization. Journal of Industrial & Management Optimization, 2007, 3 (1) : i-ii. doi: 10.3934/jimo.2007.3.1i

[20]

Jia Shu, Jie Sun. Designing the distribution network for an integrated supply chain. Journal of Industrial & Management Optimization, 2006, 2 (3) : 339-349. doi: 10.3934/jimo.2006.2.339

2018 Impact Factor: 1.025

Metrics

  • PDF downloads (39)
  • HTML views (280)
  • Cited by (0)

Other articles
by authors

[Back to Top]