Contract Coordination In A Dual-channel Supply Chain Under Fairness Preference

The research of traditional supply chain management is based on the hypothesis ofthat people are purely self-interest preference. However, a series of experiments basedof Game theory and empirical studies are convincing proved that beyond theself-interest preference, people also have other behavior psychologicalpreferences.These preferences play an important role on people’s decision-makingbehavior. Fairness preference is a kind of very important and common behaviorpsychological preferences. In this paper, aiming at the two-echelon Dual-ChannelSupply Chain(DCSC), developing the stackelberg game model with a retailer who hasfairness preference and a manufacturer who has a direct channel, combining the theoryof supply chain contract and fairness preference, using the game theory andoptimization technology to research and design the New Buy-Back Contract(NBBC)and New Revenue-Sharing Contract(NRSC) which can realize the DCSC coordination.This paper mainly includes two parts as follows:The first part, In view of the the problem that the common supply chain contracts willnot be able to effectively coordinate the DCSC, introducing the retailer’s fairnesspreference under the basic newsvendor model, assuming that the market demand isstochastic and effected by the retailer’s effort level, respectively designing the NBBCand NRSC which can realize the DCSC coordination. The theoretical derivation andnumerical experiments have shown that the NBBC and NRSC have the samecoordination effect when contract parameters satisfy a certain relationship. Thediscussion lies in Chapter3and4. The results of numerical simulation show that: whenthe retailer has a Disadvantageous Inequality Aversion(DIA) preference, the optimalwholesale price and buy-back price are decreasing with the increase of the retailer’sDIA level; The retailer’s DIA preference can benefit the retailer but not themanufacturer. However, the optimal utility level of the channel members and the wholesupply chain are gradually reducing with the increase of the retailer’s DIA level, whichshows that the harmonious degree of cooperative relations between the manufacturerand the retailer is gradually reduced. when the retailer has an Advantageous InequalityAversion(AIA) preference, the optimal wholesale price and buy-back price areincreasing with the increase of the retailer’s AIA level; The retailer’s AIA preferencecan benefit the manufacturer but not the retailer. However, the optimal utility level of the channel members and the whole supply chain are gradually increasing with theincrease of the retailer’s AIA level, which shows that the harmonious degree ofcooperative relations between the manufacturer and the retailer is gradually increased.The second part, In view of the the problem that the common supply chain contractswill not be able to effectively coordinate the DCSC, from the perspective of channelmembers’ pricing policies coordination, assuming that the market demand function is alinear structure depends on the channel price, designing the NRSC which can realize theDCSC coordination under the retailer’s fairness preference. The discussion lies inChapter5. The results show that only when the retailer has a DIA preference, the NRSCcan achieve DCSC coordination. The results of numerical simulation show that: Whenthe DCSC realizes coordination, the manufacturer holds the entire sales revenue of thedirect channel whether the retailer has the DIA preference or not; The sales revenueshare which the retailer holds of the traditional retail channel and the manufacturer’swholesale price are increasing with the increase of the retailer’s DIA level. The retailer’sDIA preference can benefit the retailer but not the manufacturer. However, the optimalutility level of the channel members and the whole supply chain are gradually reducingwith the increase of the retailer’s DIA level, which shows that the harmonious degree ofcooperative relations between the manufacturer and the retailer is gradually reduced.The research that the effect of the fairness preference of channel member ondecision-making and coordination problem under DCSC is a research direction ofbehavioral supply chain management in today and future. The results have certaintheoretical value and can provide the practical management implications for the realDCSC management practices.