Pricing and Supply Chain Transparency to Conscientious Consumers

30 Pages Posted: 19 Aug 2021

See all articles by Marco Bertini

Marco Bertini

affiliation not provided to SSRN

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Daniel Halbheer

HEC Paris - Marketing

Multiple version iconThere are 2 versions of this paper

Date Written: November 2, 2020

Abstract

This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the low-cost and high-cost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the high-cost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint.

Keywords: Conscientious consumption, cost transparency, operational transparency, pricing, reference-dependent preferences.

JEL Classification: D9, L11, L21, M31

Suggested Citation

Bertini, Marco and Buehler, Stefan and Halbheer, Daniel, Pricing and Supply Chain Transparency to Conscientious Consumers (November 2, 2020). HEC Paris Research Paper No. MKG-2018-1251, Available at SSRN: https://ssrn.com/abstract=3120448 or http://dx.doi.org/10.2139/ssrn.3120448

Marco Bertini

affiliation not provided to SSRN

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Daniel Halbheer (Contact Author)

HEC Paris - Marketing ( email )

Paris
France

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