Fair but Risky? Recycle Pricing Strategies in Closed-Loop Supply Chains

Jianhong He, Lei Zhang, Xiao Fu and Fu-Sheng Tsai
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Jianhong He: School of Economics and Management, Chongqing University of Posts and Telecommunications, Chongqing 400065, China
Lei Zhang: School of Economics and Management, Chongqing University of Posts and Telecommunications, Chongqing 400065, China
Xiao Fu: School of Economics and Management, Chongqing University of Posts and Telecommunications, Chongqing 400065, China
Fu-Sheng Tsai: Department of Business Administration, Cheng Shiu University, Kaohsiung 833, Taiwan

IJERPH, 2018, vol. 15, issue 12, 1-18

Abstract: We argue that a Nash bargaining model with behavioral factors (i.e., fairness concern and risk aversion) should be introduced to the price strategizing process in the context of a closed-loop supply chain. We consider three different pricing models: The first is when both the manufacturer and the retailer have fairness concerns; the second is when both the manufacturer and the retailer have risk aversion; and the final is when the manufacturer has risk aversion but the retailer has both risk aversion and fairness concern. Then we examine the model with game theory. The results have shown that fairness and risk aversion change the optimal pricing strategy, which affects the expected profits of retailers and manufacturers. The impacts of two (relatively irrational) behavioral factors on the wholesale and retail prices of new products, the recycle price and recycle transfer price of the waste products, are not the same. For new products, the wholesale price is most affected by behavioral factors and the sales price scores second. For waste recycling products, the transfer price is most affected by behavioral factors and the recycle price scores second. When considering fairness and risk aversion in retail, fairness concern is good for both manufacturers and retailers. This innovative pricing strategy model 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: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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