Fairness and Channel Coordination

Abstract:     
In this paper, we incorporate the concept of fairness in a conventional dyadic channel to investigate how fairness may affect channel coordination. We show that when channel members are concerned about fairness, the manufacturer can use a simple wholesale price above its marginal cost to coordinate this channel both in terms of achieving the maximum channel profit and in terms of attaining the maximum channel utility. Thus, channel coordination may not require an elaborate pricing contract. A constant wholesale price will do.

Number of Pages in PDF File: 28

Keywords: Distribution Channels, Fairness, Channel Coordination, Behavioral Economics

JEL Classification: D03, D74, D86, L11, L43, M31, M38

Accepted Paper Series