Buy-Back Contract Incorporating Fairness in Approach of Stackelberg Game

Abstract

This paper develops the basic model of the buy-back contract by introducing the fairness to investigate how the dominant supplier decides the wholesale price, whether the buy-back contract can achieve coordination and how the fairness influences the wholesale price. It is found that, under Stackelberg game between the retailer and the dominant supplier, the buy-back contract cannot coordinate the supply chain whether the fairness is incorporated or not. Furthermore, the optimal wholesale price under Stackelberg game is larger than the initial wholesale price, which can achieve coordination. Moreover, the optimal wholesale price decreases with the retailer’s fairness, while it increases with the supplier’s fairness.