Social preferences and distribution channels

In this chapter the authors examine the effect on channel decisions and profitability of a class of preferences known as social preferences. They concentrate on fairness and provide results for analytical models of channel relationships in which the retailer cares for fairness. They show that such social preferences can coordinate the channel when the retailer is sufficiently adverse to inequity. The authors investigate how fairness affects the most popular channel-coordinating mechanisms (i.e., two-part tariffs and quantity discounts), and show that introducing these contracts in the presence of fairness leads to very different results in terms of profit distribution among channel members. They explore how different concepts of fairness impact the efficiency of the channel and extend the model to allow for fairness concerns on the manufacturer to confirm the channel-coordinating ability of fairness. The authors conclude with empirical predictions to be tested on field data in future research.