Research on supply chain performance based on retailers’ fairness concerns: Wholesale prices versus cost sharing of efforts

Abstract

With the deepening of the research on supply chain management, scholars have increasingly begun to investigate the impact of fairness on a supply chain, and many conclusions suggest that a simple wholesale price can coordinate a supply chain under specific conditions. However, the corresponding analysis and other optimization mechanisms that affect the situation in which the channel cannot be coordinated are either omitted or given little attention. In this paper, we constructed a dyadic supply chain with a single manufacturer and a single retailer; the manufacturer acts as a selfish leader, and the retailer acts as a follower with fairness concerns and sales efforts. For this setting, we derived the equilibrium strategy solution for a wholesale price contract and cost sharing of effort (CS-E) contract offered by the manufacturer, and the results indicated that both contracts achieved channel coordination with different requirements. Further, the profit of the manufacturer and the sales effort of the retailer under CS-E contracts were never less than those for the wholesale price contract, and there was an interval during which the retailer’s profit and utility and supply chain efficiency were better than those under the wholesale price contract. In addition, we described situations in which a CS-E contract is unnecessary. These results should be a useful reference for managerial decisions and organizations.