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Title: Distributional and peer-induced fairness in supply chain contract design
Authors: Ho, T.-H. 
Su, X.
Wu, Y. 
Keywords: behavioral economics
behavioral operations management
distributional fairness
peer-induced fairness
supply chain contracting
Issue Date: Feb-2014
Citation: Ho, T.-H., Su, X., Wu, Y. (2014-02). Distributional and peer-induced fairness in supply chain contract design. Production and Operations Management 23 (2) : 161-175. ScholarBank@NUS Repository.
Abstract: 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. © 2013 Production and Operations Management Society.
Source Title: Production and Operations Management
ISSN: 10591478
DOI: 10.1111/poms.12064
Appears in Collections:Staff Publications

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