Newsvendor model for a dyadic supply chain with Nash bargaining fairness concerns

Abstract

The paper investigates newsvendor problem for a dyadic supply chain in which both the supplier and the retailer have the preference of status-seeking with fairness concerns. Nash bargaining solution is introduced as the fairness reference point and equilibrium results are derived. The effects of fairness-concerned status-seeking behaviors on optimal decisions as well as channel efficiency are further analyzed. It is shown that the channel efficiency will decrease because of such behavioral preference. The retailer’s share will be larger when the supplier concerns fairness less, and the supplier’s sensitivity to fairness plays a relatively more important role for the channel efficiency. Additionally, another interesting managerial insight is concluded that fairness concerns will not change the status of channel coordination in certain conditions. More specifically, those contracts able (unable) to coordinate fairness-neutral supply chain, based on affine transformations with scale factors within certain ranges, still succeed (fail) to coordinate the fairness-concerned. Furthermore, several insights on bargaining powers are given as well.