Effect of fairness on channel choice of the mobile phone supply chain

This paper considers a one-service operator, one-handset manufacturer mobile phone supply chain (MPSC), and examines how the nature and level of both the handset manufacturer's fairness concerns and the operator's fairness concerns affect the decision of pricing, subsidizing, and channel choice between an unlocked channel and a bundled channel. Our analysis shows that in most circumstances, the MPSC will choose the bundled channel as long as the price elasticity is higher; however, this property is invalid under certain conditions. Our analysis further shows that the introduction of fairness may have significant effects on channel choice decisions. First, the manufacturer's fairness may hinder the MPSC from choosing the bundled channel when the channel power between the operator and the manufacturer is sufficiently asymmetric. Second, when the manufacturer is almost neck-and-neck with the operator, the manufacturer's fairness concerns may be conducive to the deployment of the bundled channel. Third, the bundled channel would never be a reasonable choice for both the operator and the MPSC when the manufacturer has a relatively powerful status, in particular under the situation when the manufacturer has strong fairness concerns. Fourth, the operator's fairness concerns are always detrimental to the bundled cooperation which is different from the effect of the manufacturer's fairness concerns, and the bundled channel would never be a reasonable choice for the MPSC when the operator is extremely powerful.