Manufacturer Incentive Provision for Consumer Deliberation in a Supply Chain With a Fair‐Minded Retailer

ABSTRACT This paper studies a manufacturer's incentive provision strategy for consumer deliberation in a decentralized supply chain with a fair‐minded retailer who is concerned with how the supply chain profit is allocated. Consumers who are initially uncertain about the quality of the product may incur fixed deliberation costs to ascertain their actual valuations of the product to make the proper purchase decisions. We develop a game‐theoretic model that accounts for the filtering effect exerted by a fair‐minded retailer on the upstream manufacturer's strategic pricing manipulation that intends to influence consumer deliberation, as well as the effect of their interactions on the dynamics of channel relationships. Some interesting results are obtained. First, our findings reveal that the manufacturer has a stronger incentive to lower the wholesale price driven by the retailer's fairness concerns when the deliberation cost is low or high. This incentive becomes especially salient if the retailer is highly averse to inequality such that, under specific conditions, channel coordination can always be achieved through a wholesale price policy in the presence of consumer deliberation. Second, the positive effect of the retailer's inequality aversion on the wholesale price can align her interest with the manufacturer's, such that her profit may be maximized even at a high deliberation cost. Third, when the retailer requires a low profit allocation ratio, the manufacturer may prefer a low wholesale price to motivate the retailer to inhibit consumer deliberation instead of a high wholesale price to provide an incentive for inducing it in the absence of retailer fairness concerns. Consequently, both channel members can benefit from retailer fairness concerns. Finally, the retailer becomes less inclined to fully empower the consumers if she is sufficiently inequity averse, whereas the manufacturer's empowerment decision remains unaffected.