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Journal of Intelligent Manufacturing

, Volume 30, Issue 1, pp 193–206 | Cite as

A feasible incentive contract between a manufacturer and his fairness-sensitive retailer engaged in strategic marketing efforts

  • Xujin Pu
  • Lei Gong
  • Guanghua HanEmail author
Article

Abstract

This paper considers a feasible incentive contract between a manufacturer and a fairness-sensitive retailer. The manufacturer (he) dominates the supply chain and determines his wholesale price, while the retailer (she) focuses on marketing and retailing. Thus, the retailer’s decision concerns her marketing efforts and retail price. The market demand is linked directly to the retailer’s marketing efforts and retail price. Therefore, we find that the retailer’s fairness preference leads her to engage in high-level marketing efforts, but causes the manufacturer to set a low wholesale price. A strategic decision-making approach that the manufacturer can employ is to consider the retailer’s fairness sensitivity. We also find that the retailer’s concern for fairness influences the manufacturer’s decisions strongly and affects his expected profit negatively. The manufacturer dominates the supply chain, thereby motivating him to design a feasible incentive contract to maximize his expected profit. Thus, a fairness-embedded profit-sharing contract applied with a Nash bargaining process is proposed to maximize the manufacturer’s expected profit. Both mathematical derivations and numerical studies show that the incentive contract leads to Pareto improvement in the utilities of the manufacturer and the retailer.

Keywords

Feasible incentive contract Fairness-sensitive Profit-sharing Marketing effort 

Notes

Acknowledgments

We gratefully acknowledge the financial support extended by the National Natural Science Foundation of China (Nos. 71371086 and 71501128), the Central University Basic Research Funds of China (No. JUSRP51416B), the Shandong Social Science Planning Fund Program (No.14CGLJ07) and Cross-synthesis of Science & Humanities of Shanghai Jiao Tong University.

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.School of BusinessJiangnan UniversityWuxiChina
  2. 2.Synergetic Innovation Center of Food Safety and NutritionWuxiChina
  3. 3.School of International and Public AffairsShanghai Jiao Tong UniversityShanghaiChina

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