Pricing and Supply Chain Transparency to Conscientious Consumers

Item Type Monograph (Discussion Paper)
Abstract

This paper studies how a firm should make pricing and transparency decisions when consumers care about supply chain characteristics. We first show how preferences that account for price and unit cost constrain the firm’s pricing power and profit. Surprisingly, we find that the firm may be forced to sell at unit cost under markup aversion. Next, we assume that consumers are uncertain about unit cost and show that, in a pooling equilibrium, it is optimal for both the low-cost and high-cost firm to conceal its unit cost if the cost of disclosure exceeds the corresponding gain from demand expansion. Third, we show that in a separating equilibrium it is optimal for the high-cost firm alone to engage in cost transparency when the increase in product market profit exceeds the cost of disclosure. Finally, we establish the conditions under which it is optimal for the firm to disclose other details of the supply chain including provenance, labor policies, and environmental footprint.

Keywords: Conscientious consumption, cost transparency, operational transparency, pricing, reference-dependent preferences.

Authors Bertini, Marco; Bühler, Stefan & Halbheer, Daniel
Language English
Subjects economics
HSG Classification contribution to scientific community
HSG Profile Area SEPS - Economic Policy
Date November 2020
Publisher SEPS
Place of Publication University of St.Gallen, Department of Economics
Series Name Discussion Papers
Number of Pages 30
Depositing User M.A. UZH Denise Eigenmann
Date Deposited 02 Nov 2020 14:42
Last Modified 02 Nov 2020 15:19
URI: https://www.alexandria.unisg.ch/publications/261334

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Citation

Bertini, Marco; Bühler, Stefan & Halbheer, Daniel: Pricing and Supply Chain Transparency to Conscientious Consumers. Discussion Papers, SEPS, 2020,

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https://www.alexandria.unisg.ch/id/eprint/261334
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