Fairness Ideals in Distribution Channels

Journal of Marketing Research, Forthcoming

71 Pages Posted: 14 Mar 2012 Last revised: 30 Dec 2016

Tony Haitao Cui

University of Minnesota - Twin Cities

Paola Mallucci

University of Wisconsin - Madison - Department of Marketing

Date Written: February 1, 2016

Abstract

The authors analytically and experimentally evaluate how firms make decisions in a two-stage dyadic channel, in which firms decide on investments in the first stage and then on prices in the second stage. They find that firms’ behavior differs significantly from the predictions of the standard economic model and is consistent with the existence of fairness concerns. Using a quantal response equilibrium model, in which both manufacturer and retailer make noisy best responses, the authors show that fairness significantly affects channel pricing decisions. In addition, they investigate what affects the perceptions of fairness. More specifically, they analyze whether the notion of fairness is influenced by social norms of strict equality, by endogenous investments and contributions that are affected by players’ decisions, or by the exogenous game structure. To do so, the authors compare four principles of distributive fairness: strict egalitarianism; liberal egalitarianism; libertarianism; and a sequence-aligned ideal, which is studied for the first time in the literature. Surprisingly, the exogenous game structure reflected by the new ideal, whereby the sequence of moving determines the equitable payoff for players, significantly outperforms other fairness ideals, suggesting that equity in distribution channels can arise even in contests in which channel members have fairly different payoffs.

Keywords: fairness ideals, distribution channels, quantal response equilibrium, experimental economics

JEL Classification: C72, D63

Suggested Citation

Cui, Tony Haitao and Mallucci, Paola, Fairness Ideals in Distribution Channels (February 1, 2016). Journal of Marketing Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2021248 or http://dx.doi.org/10.2139/ssrn.2021248

Tony Haitao Cui (Contact Author)

University of Minnesota - Twin Cities ( email )

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

Paola Mallucci

University of Wisconsin - Madison - Department of Marketing ( email )

United States

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