Date of this Version
Production and Operations Management
Members of a supply chain often make profit comparisons. A retailer exhibits peer-induced fairness concerns when his own profit is behind that of a peer retailer interacting with the same supplier. In addition, a retailer exhibits distributional fairness when his supplier's share of total profit is larger than his own. While existing research focuses exclusively on distributional fairness concerns, this study investigates how both types of fairness might interact and influence economic outcomes in a supply chain. We consider a one-supplier and two-retailer supply chain setting, and we show that (i) in the presence of distributional fairness alone, the wholesale price offer is lower than the standard wholesale price offer; (ii) in the presence of both types of fairness, the second wholesale price is higher than the first wholesale price; and (iii) in the presence of both types of fairness, the second retailer makes a lower profit and has a lower share of the total supply chain profit than the first retailer. We run controlled experiments with subjects motivated by substantial monetary incentives and show that subject behaviors are consistent with the model predictions. Structural estimation on the data suggests that peer-induced fairness is more salient than distributional fairness.
This is the peer reviewed version of the following article: Ho, T.-H., Su, X. and Wu, Y. (2014), Distributional and Peer-Induced Fairness in Supply Chain Contract Design. Prod Oper Manag, 23: 161–175. doi:10.1111/poms.12064, which has been published in final form at http://dx.doi.org/10.1111/poms.12064. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms
Ho, T., Su, X., & Wu, Y. (2014). Distributional and Peer-Induced Fairness in Supply Chain Contract Design. Production and Operations Management, 23 (2), 161-175. http://dx.doi.org/10.1111/poms.12064
Date Posted: 27 November 2017
This document has been peer reviewed.