Abstract: The paper studies how the rational manufacturer designs the salesforce incentive for fairness-aware sales agent under two different pricing strategies, for which we develop optimal pricing and salesforce incentive models: centralized pricing and delegated pricing settings. The models are further solved and the optimal compensation contracts as well as the pricing are derived, and then the sensitivity analysis of fairness concern are conducted. Extensive comparative studies are conducted to highlight the impacts of the sales agent’s fairness concern on the compensation decisions and on different price strategies. The results show that the fairness behavior prompts the sales agent to exert less sales efforts, and reduces the profits of the manufacturer under the two pricing strategies. The price, incentive coefficient, sales effort and the profit of the manufacturer are higher under the centralized pricing with the same fairness concern, the manufacturer favors centralized pricing over delegated pricing, while the sales agent prefers delegated pricing. The sales agent’s fairness concern is detrimental to the manufacturer and the whole system. All our findings are numerically verified lastly.

Key words: salesforce incentive, optimal pricing, fairness concern, delegation, principal-agent theory