Interactive impact of fairness concerns and competition on supply chain coordination

Abstract

Purpose Fairness concerns in the supply chain management have recently caught much attention in the OM research community. The combined effect of fairness and competition on supply chain coordination and the interplay between them, however, have yet to be thoroughly examined. Design/methodology/approach The authors study a multiplayer supply chain with one supplier and two competing retailers with fairness concerns by a three-player Stackelberg game model. This theoretical study provides equilibrium solutions under different ranges of fairness and competition combinations. Besides theoretical analysis, the authors also conduct standard economic experiments and estimate structural parameters using experimental data. Findings The authors find that a simple wholesale price can coordinate the whole supply chain with certain conditions of fairness and competition. Moreover, although fairness concerns always decrease the wholesale price and increase retailers' profit share, downstream competition weakens such effects and decreases downstream players' market share. The experiments confirm the existence of fairness concerns and the interaction of competition and fairness, as shown in the theoretical analysis. Research limitations/implications A more comprehensive model with both distributional and peer-induced fairness considered could generate better insights in the interactive impact of competition and fairness. Moreover, the authors followed the previous channel competition literature and modeled the demand with linear demand function which makes the game decisions trackable in closed form solution. A more general demand function could result in different solutions and thus new insights. Originality/value The authors’ work provides a comprehensive theoretical study of the interaction between fairness concerns and competition and clarifies the in-depth connection between the effects of competition and fairness concerns in the literature.