Game-Theoretic Analysis of Pricing Models in a Dyadic Supply Chain With Fairness Concerns

Abstract

The existing studies on fairness in channel coordination assume markets as the group of oligopolies in which a few firms dominate, scant evidence has been provided where fairness concerns are investigated for a market scenario where all firms share equal dominance. This article considers a dyadic supply chain composed of one fair-minded manufacturer and one fair-minded retailer and investigate their pricing decisions under two different non-cooperative game-theoretic frameworks: manufacturer-led Stackelberg game and Vertical Nash game and provide a comparative analysis. The results show that the prices of the Stackelberg game model are always higher than that of the corresponding prices of the Vertical Nash game. We also find that the prices gap between the two models decreases with the retailer's fairness concern, and is uncertain with respect to manufacturer's fairness. In addition, the manufacturer's (retailer's) profit in the Stackelberg game is decreasing (increasing) in its own fairness and is uncertain in the Vertical Nash game. Furthermore, findings are illustrated through a numerical example.