Group Buying of Competing Retailers with Fairness Concerns

Abstract

The fairness concern behavior is particularly common among members in supply chain framework. The downstream retailers often compare their profits with those of the other members in the supply chain, especially that of the supplier, and do not like the unfavorable distribution of the total profits. This work considers a supply chain consisting of a supplier and two competing retailers with fairness concerns. The supplier offers a wholesale contract with quantity discount, and the two competing retailers have the options of individual purchasing and group buying. Through a Stackelberg game model, the optimal decisions for the players are obtained for the group buying and the individual purchasing strategies. The results indicate that the supplier benefits more than the retailers from the group buying strategy. In particular, the group buying strategy gives the supplier a higher profit if the operational cost of group buying is below a threshold. Furthermore, the fairness concern behavior of the retailers does not always hurt the profit of the supplier. Specifically, the supplier will benefit from the fairness concern behavior of the retailers in individual purchasing when the retailers operates in a relatively poor environment. Finally, market competition between the two fairness concerned retailers does not always benefit the supplier. Fierce competition between the fairness concerned retailers reduces the supplier’s profit if the group buying strategy is used when the retailers operates in a relatively poor environment.

Keywords

Group buying / individual purchasing / stackelberg game / fairness concerns / supply chain

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