Abstract
We study supplier–buyer relationships in smallholder agri-food supply chains with equity concerns and under stakeholder engagement. We develop a game theoretic model to study the impact of these socially responsible practices in investment and pricing decisions. We model this as a Stackelberg game and study the impacts of the power structure in the outcomes. Our work was motivated by the business model of socially responsible Mexican company Fractal Café. We provide closed form expressions for the optimal wholesale and retail prices, and numerically study the effect of the model parameters. We show that equity concerns drive a redistribution of the profit towards an equitable outcome, but they do not have the same effect on the investment decisions. Additionally, we show that equity concerns may reverse the advantage of the game leader and transfer utility to the follower. We identify the settings under which the introduction of socially responsible practices increases the total supply chain profit by reducing the double marginalization effect. We find that capacity constraints result in a higher retail price, achieved by increasing the leader’s margin. Finally, we show that a two-part tariff contract with equity concerns is only convenient for the game follower when the leader has a high concern for advantageous inequity.
Highlights
Smallholder farmers constitute about two thirds of the developing world’s rural population (Rapsomanikis 2015)
The objective of this paper is to study the impact of these two practices on the economic and social objectives of a farmer and a agri-food firm in a dyadic supply chain setting
Together with the equity concerns, we introduce stakeholder engagement practices and find that the buyer settles for a lower profit margin than when he has a profit maximizing objective whenever the wholesale price is sufficiently low
Summary
The relevant literature includes research related to quantitative measures of equity, supplier–buyer relationships with equity concerns, investment in suppliers’ production processes, stakeholder engagement in socially responsible firms, and power structures in pricing games. Ingene et al (2019) study different linear and nonlinear pricing schemes where the buyer has inequity aversion, including wholesale price, quantity discount, and two-part tariff contracts They show under which conditions each contract can coordinate the supply chain for the scenario where the supplier is the game leader. Liu et al (2018) study the initiative of creating consortia of retailers to address the social challenge of improving the working conditions of supplier factories in developing countries They highlight that including all stakeholders in the value chain in the process of decision-making makes the improvement efforts “more effective, efficient, sustainable or just.”. We contribute to this stream of literature by studying how big (buyer) agri-food firms can help (supplier) smallholder farmers by granting them the leadership in decision-making. We analyze two different contracts and identify the conditions under which the game leader does not enjoy an advantage
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
