Social price-sensitivity of demand for competitive supply chain coordination

Abstract

Social price-sensitivity of demand is proposed for a two-echelon competitive supply chain (SC) comprising a monopolistic manufacturer and two duopolistic retailers. In the investigated SC, the manufacturer invests in corporate social responsibility (CSR) effort, and the retailers compete on selling price. This paper demonstrates the effect of the manufacturer’s CSR effort on customers’ price sensitivity. Therefore, the main contribution of this study is to propose a novel competitive price-dependent demand in which customers’ self-price and cross-price sensitivities depend on the manufacturer’s CSR effort. The SC under consideration is modelled in decentralized, centralized, and coordinated decision-making structures. Additionally, the effect of different vertical game structures and various game behaviors of the two retailers on the overall chain’s profitability, SC members’ profitability, and optimal decisions is analyzed. Our results indicate that the proposed two-part tariff contract increases both the CSR effort and the retail prices. Furthermore, the proposed coordination model can benefit all in the chain; thus providing a win-win situation for all SC members. The results also suggest that customers’ price sensitivity can be effectively decreased by the manufacturer’s CSR effort.