Fairness concerns and risk aversion on recycle pricing strategies: Implications for environmentally friendly supply chains

Jianhong He, Lei Zhang, Binbin Lu and Lin Li

No 2018-35, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This paper studies the pricing strategy in the closed-loop supply chain with Nash bargaining when considering fairness concerns and risk aversion. Mainly, the authors argue that behavioral factors (i.e., fairness concern and risk aversion) should be introduced into pricing process. They consider three different pricing models: the first is that both manufacturer and retailer have fairness concern; the second is both manufacturer and retailer have risk aversion and the final is manufacturer has risk aversion but retailer has both risk aversion and fair concern. Then the authors analyze the model with game theory. The results showthat fairness and risk aversion change the optimal pricing strategy, which affects the expected profits of retailers and manufacturers. The impact of the two (relatively irrational) behavioral factors on wholesale price and retail price of new products, as well as the recycle price and recycle transfer price of the waste products are not the same. For new products, wholesale price is the most affected by the behavioral factors, and the sales price as the second. For the waste recycling products, the transfer price is the most affected by the behavioral factors, and recycle price as the second. When facing the fairness and risk aversion retailer, retailers' fairness concern is good for both manufacturers and retailers. This innovative model for pricing strategy adds implications for sustainability in supply chain operations.

Keywords: closed-loop supply chain; irrational behavior education; fairness concerns; risk aversion; pricing strategy (search for similar items in EconPapers)
JEL-codes: D4 L11 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-com, nep-gth and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:201835

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