Price squeeze under fairness: the road to supply chain coordination with a powerful retailer

This research investigates the impacts of the manufacturer’s fairness concerns on the supply chain performance when the power retailer implements a price squeeze and market service investment together. Through game-theoretic modeling, we find that 1) in the absence of fairness, although the manufacturer may be worse off due to possessing imperfect information on the price squeeze rate, the channel may be coordinated through an ex-ante negotiation between the two parties. 2) When the manufacturer has fairness concerns for price squeeze, both channel performance and brand goodwill are made worse by disadvantageous inequality and improved by advantageous inequality versus the case of no fairness concerns. Furthermore, channel members’ ex-ante negotiations regarding a profit reallocation scheme under certain conditions may achieve the following three objectives: generating a channel profit of the coordination level, promoting brand goodwill to the level of the integrated channel, and creating an equitable channel relationship.