Effect of fairness and overconfidence on pricing strategy of substitute bundles in a two-echelon supply chain

Cognitive biases fairness and overconfidence, affect the decision-making process. The manufacturer/retailer prefers to sell the products as bundles in a duopoly market because it fetches more benefits to supply chain (SC) partners. Till now, none considered the pricing of substitute bundles, produced and sold at the manufacturers level. Considering these, the effects of the above cognitive behaviours on the bundling pricing strategy are investigated. We develop several SC models, depending on the partners cognitive biases, with two manufacturers, producing substitute bundles of two uncorrelated items and selling through a retailer. Using the Stackelberg game, prices and profits are evaluated. It is observed that overconfidence does not increase retailers and overconfident manufacturers profits but is beneficial for another rational manufacturer. Against the retailers fairness concern, her profit is augmented, but both manufacturersprofits are adversely affected. The combined effect of both cognitive biases is adjuvant for the retailer but maleficent for manufacturers. Managerial insights are presented.