Selection And Optimization Of Compensation Strategies Of Supply Chain Co-op Advertising With Fairness Concerns

With the rapid development and improvement of supply chain system, various supply chain partners’ cooperative mechanism are emerging in response to the needs of time in order to realize the optimal allocation of resources, gain competitive advantage and expand the market share of the supply chain organization. Among them,co-op advertising is one of the most popular way adopted by players of the supply chain. Most of researches on co-op advertising of the supply chain assumed that the players in the supply chain were “rational” economic men. However, channel members do consider the fairness of profit distribution in real business events. Thus,assuming that demand function is affected simultaneously by price, local advertising and national advertising, this paper specially analyzes the effect of fair factor on compensation strategies of co-op advertising by game theory in the supply chain consist of a single manufacturer and a single retailer.Firstly, the paper analyzes the cost share strategy and price discount strategy of co-op advertising without fairness. When channel members are rational, the manufacturer will choose cost share strategy, while the retailer’s choice depends on influence coefficient of local and national advertising.Secondly, the paper establishes a supply chain co-op advertising model under fairness concerns based on Nash bargaining theory and analyzes the effect of fair factor on two different co-op advertising strategies when the retailer has fairness concerns. By contrasting co-op advertising strategies with and without fairness concerns, we find that along with the increase of retailer’s fairness concerns, the manufacturer will first support the retailer then get tougher and tougher in cost share strategy. But in price discount strategy, the manufacturer will always support the retailer through rising price discount no matter how strong the sensitive degree of the retailer to fair. By contrasting two different co-op advertising strategies under fairness,the paper finds that only the retailer’s sensitive to fair is extremely low, both channel members will choose cost share strategy, or they will prefer price discount strategy.Finally, since fair factor will not weaken the “double marginalized” negative effects on the supply chain, the paper try to get optimal results of the two strategies under retailer’s fairness concerns to achieve “Pareto optimization” and discusses the profits distribution based on Nash bargaining theory to realize supply chain coordination.The research not only enriches the theoretical results of behavior operations management in supply chain management, but also has realistic instructive significance for managers’ decisions and methods in business events.