Fairness and Channel Coordination

Authors:
Tony Haitao Cui;Jagmohan S. Raju;Z. John Zhang
Affiliations:
Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455;The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104;The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Venue:
Management Science
Year:
2007

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Abstract

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 her 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.