The Impact of Consumer Fairness Seeking on Distribution Channel Selection: Direct Selling vs. Agent Selling
Zelong Yi, Yulan Wang, Yun Liu, Ying-Ju Chen
Production and Operations Management · 2018 · Volume 27 · Issue 6
Abstract
Consumers seek for not only base functionalities of products they buy but also fairness in transactions. In this work, we investigate how such fairness-seeking behavior affects a manufacturer's distribution channel structure selection. Specifically, the manufacturer can sell the product directly to consumers (nameddirect selling) or via a middleman retailer (namedagent selling). The manufacturer then decides which distribution channel to adopt with an aim to maximize his profit. Under a newsvendor framework, the distribution channel structure endogenizes the procurement cost and thus impacts consumers’ fairness perception and willingness to pay. Interestingly, we show that it may be in the manufacturer's best interest to downward decentralize his distribution channel by adopting agent selling when consumers are extremely fairness-minded. However, when the consumer's fairness concern is weak, direct selling is preferred by the manufacturer. We further show that the above results qualitatively hold when we take into consideration the downstream competition, the dominance of the manufacturer in retail pricing and the heterogeneity of the consumers in their fairness seeking.
Keywords
fairness seeking, behavioral modelling, operations-marketing interface, distribution channel
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