Effects of fairness concerns on price and quality decisions in IT service supply chain

Abstract

In practice, fairness concerns always have significant impacts on the performance of IT service supply chain (ITSSC). However, the existing research on IT sourcing lacks attention to this issue. In this study, we consider an ITSSC with a software developer, a service provider, and client enterprises. The developer authorizes its software to the provider, and then the provider sells the software to the clients. The provider also provides clients with free pre-sale services before they purchase the software, and then the clients can purchase the extended warranty service (EWS) from the developer. Three scenarios are discussed in this study; that is, the supply chain members have no fairness concerns, the developer has fairness concern, and the provider has fairness concern. We find that in the latter two scenarios, the fairness concern has strongly negative impact on the quality of the pre-sale service, but weakly negative impacts on the price of the software and that of EWS. As a result, the fairness concern leads to a decline in the demand of the software and that of EWS. We also observe that the existence of a firm's fairness concern not only reduces its own profit, but also decreases the profit of the partner, which ultimately results in the loss of ITSSC performance. Furthermore, compared with the scenario where the provider has fairness concern, the loss of the performance is greater than that in the scenario where the developer has that.