Pricing decisions and fairness concerns: supply chain power structures

Abstract

Purpose

This paper divides the dyadic supply chain into three power structures according to the relative channel power of the supply chain members and consequently examines the optimal supply chain pricing decisions when both suppliers and retailers are concerned with fairness issues.

Design/methodology/approach

Three models are constructed, namely the Stackelberg game model with the supplier as the leader, the Nash game model with the balance of power and another Stackelberg game model with the retailer as the leader. The equilibrium solutions are solved, and their results are analyzed.

Findings

The retail price of a product increases with an increase in the fairness concerns of the leader in a supply chain in which the supplier or retailer is the leader, while the fairness concerns of the member with less channel power have no effect on the retail price. In a power-balanced supply chain, both suppliers and retailers increase their retail prices as their fairness concerns increase. The relative size of the members’ fairness concerns affects member profits and total supply chain profits.

Originality/value

The main contributions are as follows: First, this paper proposes a new approach to studying supply chain pricing strategy, considering fairness concerns and power structure. Secondly, three game models are constructed. The Nash equilibrium solution is introduced to study the fairness of supply chain participants in pricing decisions and overall supply chain profitability. Finally, the supply chain management theory is expanded by this study on pricing decisions and supply chain performance.

Citation

Han, B., Chi, T., Hu, F. and Wang, M. (2024), "Pricing decisions and fairness concerns: supply chain power structures", Management Decision, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MD-04-2024-0771