The Impact of Social Preferences on Supply Chain Performance: An Application of the Game Theory Model

Abstract

Traditional supply chain literature on contracting only considers agents’ economic motivation. Nowadays, with the development of behavioral economics, social preference theory has been widely used in supply chain research. These social preferences are distinct from economic motivation and will influence agents’ behaviors in the supply chain. Agents will make decisions based on not only self-interests but also the interests of others, reciprocity, and fairness. This paper introduces the relationship and status preferences in the utility function. We aim to analyze the impact of social preference on individual competition intensity in the supply chain. A Stackelberg game model (tacit collusion) is used as the theoretical framework of the choice behavior between competition and cooperation. The theoretical results and numerical simulation analysis show that under some conditions, suppliers and retailers who take the social preference factors into account can realize multiple-stage channel coordination through revenue sharing. Moreover, social preference factors will influence the choice behavior of agents in competition and cooperation. Specifically, the relationship preference promotes close cooperation among enterprises and significantly improves the supply chain and individual performance. Status preference causes fierce competition among enterprises and adversely affects supply chain performance and individual performance, making it more unstable. These findings can provide useful insights for supply chain coordination.