This paper examines optimal pricing in a two-tier product and service supply chain consisting of a manufacturer and a retailer in\nthe context of vertical competition in extended warranty in two cases: one considering the retailerâ??s fairness concerns and one\nwithout considering the retailerâ??s fairness concerns. A manufacturer-dominated product and service supply chain game-theoretic\nmodel on the Stackelberg model is developed to analyse how the level of vertical competition in extended warranty service and the\nintensity of a retailerâ??s fairness concerns influence the optimal pricing of products and extended warranties for the manufacturer\nand retailer. /is study finds the following: (i) Two parties of the supply chain employ differential pricing strategies for extended\nwarranties when the retailer has fairness concerns. (ii) Compared to the same pricing strategies for extended warranty service\nwhen the retailer has no fairness concerns, the increase of competition intensity of vertical extended warranty service will enlarge\nthe price difference of extended warranty service. Meanwhile, it is the intensity of fairness concerns that determines the influences\nof retailerâ??s fairness concerns on the price difference of extended warranties. (iii) If no fairness concerns are raised, an increase in\nthe level of vertical competition in extended warranty service would benefit both supply chain parties, rather than hurting their\nprofit. If the retailer is fair-minded, its fairness utility increases when the intensity of the fairness concerns rises in a reasonable\nrange and decreases when the intensity exceeds the reasonable range, but for the manufacturer, its profits will be damaged as long\nas the retailer raises fairness concerns.
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