Journal of Chemical and Pharmaceutical Research (ISSN : 0975-7384)

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Original Articles: 2014 Vol: 6 Issue: 6

Manufacturerâ??s pricing strategies for a supply chain with fairness concern

Abstract

This paper investigates the contracts and the manufacturer’s pricing strategies in a single-manufacturer and singleretailer supply chain in which the retailer shows inequity aversion to his monetary payoffs. We develop a utility model for the retailer considering his inequity-averse effects and analyze its influences on supply chain coordination and the manufacturer’s decision making under different cases. In particular, three cases are discussed in our paper, the manufacturer provides the retailer a low, high and extreme high wholesale price, and under which we study their influences on the supply chain coordination schemes, i.e., the constant wholesale price contract (CWPC), linear quantity discount contract (LQDC) and revenue sharing contract (RSC). Based on above studies, the manufacturer will set his pricing strategy to determine his globally optimal payoff. Our analysis reveals that (i) on a supply chain with an inequity-averse retailer, all the CWPC, LQDC and RSC can coordinate the chain when the manufacturer sets a low-pricing strategy; (ii) when a high-pricing strategy is made, only the LQDC (both the CWPC and RSC fail in this case) can coordinate the supply chain, but only when the retailer shows low inequity aversion; (iii) the CWPC, LQDC and RSC all fail to coordinate the supply chain when an extreme-high pricing strategy is made by the manufacturer; (iv) for the manufacturer, the LQDC and RSC show better profit performance than that of the CWPC; (v) the retailer can benefit from the supply chain by manipulating his expression of inequity aversion

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