542 / 2024-04-25 20:33:26

To be Generous or Spiteful? A Dual-Faceted Exploration of Fairness Preferences in Supply Chain with Downstream Competition

fairness preference, supply chain partnership, Cournot competition, buyer power

Fairness breeds long-term partnerships within supply chains. This paper explores the impact of fairness preferences on a supply chain that involves a leading supplier and two competitive retailers. We develop a Cournot competition model to examine how fairness, in forms of generosity and spite, affects decisions on production quantity by the supplier and subsequent ordering quantities by retailers. We demonstrate that, in perfect rational model, the supplier captures 75% of the supply chain profit, leaving only 12.5% for each retailer. By considering fairness preferences, we discover that the supplier's spite adversely affects all parties, meaning that influential suppliers in practice shall be more responsible to foster a fair supply chain environment. This responsibility persists even when trading power shifts downstream, rendering retailers' fairness preferences ineffective in influencing equilibrium outcomes due to their control over profit distribution. Additionally, when the level of product profitability is high and players present spiteful fairness preferences, enabling retailers buyer power could play a role in alleviating the lose-lose scenario and proves beneficial to the supply chain performance. Our results provide a fresh explanation for why companies nowadays tend to deepen their power partnerships with retail partners. We further extend our analysis to the situations where retailers exhibit diverse behaviors or demonstrate a perception bias in formulating their fairness preferences.