Channel coordination and profit distribution in a social responsible three-layer supply chain

This paper analyzes coordination of a manufacturer–distributer–retailer supply chain, where the manufacturer exhibits corporate social responsibility (CSR). In manufacturer-Stackelberg game setting, the paper proposes a contract-bargaining process to resolve channel conflict and to distribute surplus profit among the channel members. The contract-bargaining process consists of two wholesale price discount-Nash bargaining. One between the distributer and the retailer based on the outcome of that between the distributer and the manufacturer. Although the contract-bargaining process cuts out channel conflict and distributes surplus profit, the wholesale prices are quite different from those of a pure profit maximizing supply chain. The wholesale price of the manufacturer is less than its marginal production cost above a threshold of CSR. Even it is negative for the manufacturer׳s heavy CSR practice. So, the manufacturer׳s profit may be negative. The behavior of the wholesale price of the distributer is same as that of the manufacturer but for higher threshold of CSR.