Effects of Imprecise Cognitive Biases and Free-Riding on the Pricing Decisions of Dual-Channel Supply Chain Members

Abstract

Nowadays, to cater the increasing green customers, firms have switched to green manufacturing. In a dual-channel green supply chain (DCGSC), customers experience products at offline stores and buy them online (free-riding). Often imprecise cognitive biases (“fairness concern” and “overconfidence”) are observed among the supply chain (SC) members. With these facts, this study introduces the free-riding and above cognitive biases in a DCGSC with a manufacturer selling a green product through own online and offline retail channels and examines their effects. A centralized and four decentralized models (for green and nongreen products) are formulated depending upon channel members’ cognitive biases individually and jointly with and without free-riding. The fuzzy objectives and constraints are made deterministic using expectation and possibility measures, respectively. Models are solved and illustrated numerically. The results indicate that free-riding is harmful and beneficial to retailer and manufacturer, respectively. Manufacturer’s overconfidence enhances the retailer’s profit but decreases or increases own profit depending upon the salvage value. Retailer’s fairness concern is catastrophic for manufacturer but beneficial for her. Product greening increases manufacturer’s profit than the carbon tax regulation for lower emissions. In addition to above observations, for maximum profit, management should not go for greening beyond an optimum level.