A pricing/ordering model for a dyadic supply chain with buyback guarantee financing and fairness concerns

Abstract

The paper investigates pricing/ordering issues in a dyadic supply chain, in which a core supplier sells products through a budget-constrained retailer. The retailer faces stochastic demand and is fairness-concerned as well. If needed, the retailer can get financing support from bank by means of buyback guarantee financing (BGF) mode, which is often used in China. By introducing Nash bargaining solution as the fairness reference point, we formulate the retailer’s fairness-concerned utility function and develop a two-echelon pricing/ordering game model. We then study the combined impacts of fairness concerns and BGF on two members’ equilibrium strategies and supply chain performance. We also discuss the corresponding issues under no budget constraint, no financing service and bank financing. Our results show that: (1) two members’ equilibrium strategies are significantly influenced by the retailer’s fairness-concerned behaviour and initial budget; (2) as compared to no budget constraint, BGF can bring the whole supply chain more performance, which means that BGF can yield value-added; (3) When the retailer takes the risk of uncertain market solely, the retailer’s fairness concerns are beneficial for supply chain to improve the performance.

Keywords:

• supply chain finance
• fairness concerns
• buyback guarantee financing
• pricing/ordering strategy
• stochastic demand

Acknowledgements

The authors of this paper would like to thank the editor and four anonymous referees for their careful read and helpful comments.