Fairness and Channel Coordination

Management Science, Vol. 53, No. 8, pp. 1303-1314, 2007

28 Pages Posted: 15 Jun 2009

See all articles by Tony Haitao Cui

Tony Haitao Cui

University of Minnesota - Twin Cities

Jagmohan S. Raju

University of Pennsylvania - Marketing Department

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing

Date Written: August 2007

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.

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

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

Suggested Citation

Cui, Tony Haitao and Raju, Jagmohan S. and Zhang, Z. John, Fairness and Channel Coordination (August 2007). Management Science, Vol. 53, No. 8, pp. 1303-1314, 2007. Available at SSRN: https://ssrn.com/abstract=1419164

Tony Haitao Cui (Contact Author)

University of Minnesota - Twin Cities ( email )

321 19th Ave S
Suite 3-150
Minneapolis, MN 55455
United States

Jagmohan S. Raju

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-1114 (Phone)
215-898-2534 (Fax)

Z. John Zhang

University of Pennsylvania - The Wharton School - Department of Marketing ( email )

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