AJOR  Vol.3 No.4 , July 2013
Altruism and Pricing Strategy in Dual-Channel Supply Chains
ABSTRACT

With the development of behavioral operational management, human behavior such as altruism, fairness and trust has received considerable attention. This paper studies the effect of altruism on retailer’s and manufacturer’s pricing strategy in two classic dual-channel supply chains by presenting Stackelberg game models. The analysis shows that the player’s altruism preference strongly affects their pricing strategies. The more altruistic one player is, the more profits the other player obtains. Moreover, the effect of manufacturer’s altruistic preference is larger than that of retailer’s. In addition, online price is always lower than offline price in dual-channel supply chain, which still holds true considering altruism. The results also reveal that the product web-fit has significant effect on the player’s optimal pricing strategies. The more compatible with online market the product is, the lower the retail price is set, and the more profit the manufacturer obtains whereas the less the retailer gets.


Cite this paper
K. Shi, F. Jiang and Q. Ouyang, "Altruism and Pricing Strategy in Dual-Channel Supply Chains," American Journal of Operations Research, Vol. 3 No. 4, 2013, pp. 402-412. doi: 10.4236/ajor.2013.34038.
References
[1]   W. Chiang, D. Chhajed and J. Hess, “Direct Marketing, Indirect Profits: A Strategic Analysis of Dual-Channel Supply Chain Design,” Management Science, Vol. 29, No. 1, 2003, pp. 1-20. doi:10.1287/mnsc.49.1.1.12749

[2]   G. E. Fruchter and C. S. Tapiero, “Dynamic Online and Offline Channel Pricing for Heterogeneous Customers in Virtual Acceptance,” International Game Theory Review, Vol. 7, No. 2, 2005, pp. 137-150. doi:10.1142/S0219198905000454

[3]   K. Cattani, W. Gilland, H. S. Heese and J. M. Swaminathan, “Boiling Frogs: Pricing Strategies for a Manufacturer Adding a Direct Channel that Competes with the Traditional Channel,” Production and Operations Management, Vol. 15, No. 1, 2006, pp. 40-56.

[4]   W. Huang and J. M. Swaminathan, “Introduction of a Second Channel: Implications for Pricing and Profits,” European Journal of Operational Research, Vol. 194, No. 1, 2009, pp. 258-279. doi:10.1016/j.ejor.2007.11.041

[5]   J. Chen, H. Zhang and Y. Sun, “Implementing Coordination Contracts in a Manufacturer Stackelberg Dual Channel Supply Chain,” Omega, Vol. 40, No. 5, 2012, pp. 571-583. doi:10.1016/j.omega.2011.11.005

[6]   S. Huang, C. Yang and X. Zhang, “Pricing and Production Decisions in Dual-Channel Supply Chains with Demand Disruptions,” Computers & Industrial Engineering, Vol. 62, No. 1, 2012, pp. 70-83. doi:10.1016/j.cie.2011.08.017

[7]   W. Chiang and G. E. Monahan, “Managing Inventories in a Two-Echelon Dual-Channel Supply Chain,” European Journal of Operational Research, Vol. 162, No. 3, 2005, pp. 25-41.

[8]   M. Khouja and Y. L. Wang, “The Impact of Digital Channel Distribution on the Experience Goods Industry,” European Journal of Operational Research, Vol. 207, No. 1, 2010, pp. 481-491. doi:10.1016/j.ejor.2010.04.007

[9]   S. H. Chun, B. D. Rhee, S. Y. Park S Y and J. C. Kim, “Emerging Dual Channel System and Manufacturer’s Direct Retail Channel Strategy,” International Review of Economics and Finance, Vol. 20, No. 4, 2011, pp. 812-825. doi:10.1016/j.iref.2011.02.006

[10]   B. Dan, G. Y. Xu and C. Liu, “Pricing Policies in a Dual-Channel Supply Chain with Retail Services,” International Journal of Production Economics, Vol. 139, No. 1, 2012, pp. 312-320. doi:10.1016/j.ijpe.2012.05.014

[11]   A. A. Tsay and N. Agrawal, “Channel Conflict and Coordination in the E-Commerce Age,” Production and Operations Management, Vol. 13, No. 1, 2004, pp. 93-110. doi:10.1111/j.1937-5956.2004.tb00147.x

[12]   M. Khouja, S. Park and G. Cai, “Channel Selection and Pricing in the Presence of Retail-Captive Consumers,” International Journal of Production Economics, Vol. 125, No. 1, 2010, pp. 84-95.

[13]   G. Cai, “Channel Selection and Coordination in Dual Channel Supply Chains,” Journal of Retailing, Vol. 86, No. 1, 2010, pp. 22-36. doi:10.1016/j.jretai.2009.11.002

[14]   D. Q. Yao and J. J. Liu, “Competitive Pricing of Mixed Retail and E-Tail Distribution Channels,” Omega, Vol. 33, No. 1, 2005, pp. 235-247. doi:10.1016/j.omega.2004.04.007

[15]   P. D. Berger, J. Lee and B. D. Weinberg, “Optimal Cooperative Advertising Integration Strategy for Organizations Adding a Direct Online Channel,” Journal of the Operational Research Society, Vol. 57, No. 8, 2006, pp. 920-927. doi:10.1057/palgrave.jors.2602069

[16]   S. K. Mukhopadhyay, X, Zhu and X. Yue, “Optimal Contract Design for Mixed Channels under Information Asymmetry,” Production and Operations Management, Vol.17, No. 6, 2008, pp. 641-650. doi:10.3401/poms.1080.0069

[17]   K. Y. Chen, M. Kaya and O. Ozer, “Dual Sales Channel Management with Service Competition,” Manufacturing & Service Operations Management, Vol. 10, No. 4, 2008, pp. 654-675. doi:10.1287/msom.1070.0177

[18]   G. Hua, S. Y. Wang and T. C. Cheng, “Price and Lead Time Decisions in Dual-Channel Supply Chains,” European Journal of Operational Research, Vol. 205, No. 1, 2010, pp. 113-126. doi:10.1016/j.ejor.2009.12.012

[19]   R. Yan and Z. Pei, “Information Asymmetry, Pricing Strategy and Firm’s Performance in the Retailer Multi-Channel Manufacturer Supply Chain,” Journal of Business Research, Vol. 64, No. 4, 2011, pp. 377-384. doi:10.1016/j.jbusres.2010.11.006

[20]   R. Lal and M. Sarvay, “When and How Is the Internet Likely to Decrease Price Competition?” Marketing Science, Vol. 18, No. 4, 1999, pp. 485-503. doi:10.1287/mksc.18.4.485

[21]   J. Kacen, J. Hess and W. Chiang, “Bricks or Clicks? Consumer Attitudes toward Traditional Stores and Online Stores,” Working Paper, University of Illinois, 2002.

[22]   P. Korgaonkar, R. Silverblatt and T. Girard, “Online Re tailing, Product Classifications, and Consumer Preferences,” Internet Research, Vol. 4, No. 3, 2006, pp. 289-323.

[23]   T. H. Cui, J. S. Raju and Z. J. Zhang, “Fairness and Channel Coordination,” Management Science, Vol. 53, No. 8, 2007, pp. 1303-1314. doi:10.1287/mnsc.1060.0697

[24]   H. Loch and Y. Wu, “Social Preferences and Supply Chain Performance: An Experimental Study,” Management Science, Vol. 54, No. 11, 2008, pp. 1835-1849. doi:10.1287/mnsc.1080.0910

[25]   M. Laeequddin, B. S. Sahay, V. Sahay and K. A. Waheed, “Measuring Trust in Supply Chain Partners’ Relationships,” Measuring Business Excellence, Vol. 14, No. 3, 2010, pp. 53-69. doi:10.1108/13683041011074218

[26]   S. M. Disney and T. Hosoda, “Altruistic Behavior in a Two-Echelon Supply Chain with Unmatched Proportional Feedback Controllers,” International Journal of Intelligent Systems Technologies and Applications, Vol. 6, No. 3, 2009, pp. 269-286. doi:10.1504/IJISTA.2009.024257

[27]   Z. H. Ge, Q. Y. Hu, “Who Benefits from Altruism in Supply Chain Management?” American Journal of Operational Research, Vol. 2, No. 2, 2012, pp. 59-72. doi:10.4236/ajor.2012.21007

[28]   R. C. King, R. Sen and M. Xia, “Impact of Web-Based E-Commerce on Channel Strategy in Retailing,” International Journal of Electronic Commerce, Vol. 8, No. 3, 2004, pp. 103-130.

[29]   R.Yan, J. Wang and B. Zhou, “Channel Integration and Profit Sharing in the Dynamics of Multi-channel Firms,” Journal of Retailing and Consumer Services, Vol. 17, No. 1, 2010, pp. 430-440. doi:10.1016/j.jretconser.2010.04.004

[30]   G. Charness and M. Rabin, “Understanding Social Preferences with Simple Tests,” The Quarterly Journal of Economics, Vol. 117, No. 3, 2002, pp. 817-869. doi:10.1162/003355302760193904

 
 
Top