Service quality coordination contracts for online shopping service supply chain with competing service providers: integrating fairness and individual rationality

Service quality coordination is a critical issue of online shopping service supply chain (OSSSC) management. However, such decision-making is problematic due to the behavior of channel members with characteristics of individual rationality and concerns of fairness. The two characteristics matter much to the performance and service qualityof the supply chain. Therefore, a service quality coordination contract for the OSSSC should be designed based on these two behavioral elements. This paper proposes two novel models, which take into account the two important elements mentioned above and designs coordination contracts for the OSSSC with two competing third party logistics (TPL) companies and a single online store. Equilibrium decisions in two benchmark scenarios (decentralized and centralized control) were analyzed, revealing that the use of a traditional price-only contract cannot appropriatelycoordinate the supply chain. Both proposed contracts can be used to realize global and partial coordination of the OSSSC, respectively. This is caused since both models utilize the game theory to achieve unification of individual and collective rationality, and fair allocation of the system surplus profits based on individual decisions. Numerical experiments were conducted to examine the impact of the intensity of the competition between both TPL companies on their decisions and the attention of the online store to the ratio of service level to the service price on the coordination effect.