IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v159y2022ics1366554522000321.html
   My bibliography  Save this article

By-state fairness in selling to the newsvendor

Author

Listed:
  • Wei, Lin
  • Chen, Menghan
  • Du, Shaofu
  • Zhang, Baofeng

Abstract

Previous studies assume that the decision makers under supply chain contracting built on the newsvendor problem have by-expectation fairness concerns, that is, an aversion to the inequality of expected profits. However, recent experimental data show that they are actually averse to the inequality of profits at each demand realization, which is referred to as by-state fairness concerns. This paper examines how by-state fairness concerns (only disadvantageous inequality aversion) influence the equilibrium outcomes under a selling-to-the-newsvendor model. Compared with the fairness-neutral case, while the retailer’s concern for by-expectation fairness (only disadvantageous inequality aversion) can improve supply chain performance, his strong concern for by-state fairness can worsen it. In particular, when demand variance is large, the retailer can earn less for by-state fairness concerns. Similar to by-expectation fairness, the supplier’s by-state fairness concerns can hurt both her and the retailer. The supplier’s profit decreases with demand variance, whereas the retailer’s expected profit is nonmonotone with it. When both supply chain agents care about by-state fairness, compared with the fairness-neutral case, the supplier’s profit decreases, whereas the retailer’s expected profit can either increase or decrease. The region where the retailer earns more will shrink in either the supplier’s disadvantageous inequality parameter or demand variance.

Suggested Citation

  • Wei, Lin & Chen, Menghan & Du, Shaofu & Zhang, Baofeng, 2022. "By-state fairness in selling to the newsvendor," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 159(C).
  • Handle: RePEc:eee:transe:v:159:y:2022:i:c:s1366554522000321
    DOI: 10.1016/j.tre.2022.102634
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554522000321
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.tre.2022.102634?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Adhikari, Arnab & Bisi, Arnab, 2020. "Collaboration, bargaining, and fairness concern for a green apparel supply chain: An emerging economy perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 135(C).
    2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    3. Bruno S. Frey & Alois Stutzer, 2005. "Beyond outcomes: measuring procedural utility," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 90-111, January.
    4. Liu, Zhi & Zheng, Xiao-Xue & Li, Deng-Feng & Liao, Chen-Nan & Sheu, Jiuh-Biing, 2021. "A novel cooperative game-based method to coordinate a sustainable supply chain under psychological uncertainty in fairness concerns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    5. Güth, Werner & Kocher, Martin G., 2014. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 396-409.
    6. Caliskan-Demirag, Ozgun & Chen, Youhua (Frank) & Li, Jianbin, 2010. "Channel coordination under fairness concerns and nonlinear demand," European Journal of Operational Research, Elsevier, vol. 207(3), pages 1321-1326, December.
    7. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-1136, December.
    8. Niederhoff, Julie A. & Kouvelis, Panos, 2016. "Generous, spiteful, or profit maximizing suppliers in the wholesale price contract: A behavioral study," European Journal of Operational Research, Elsevier, vol. 253(2), pages 372-382.
    9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    10. Xiaobo Zhao & Dezhen Si & Wanshan Zhu & Jinxing Xie & Zuo‐Jun (Max) Shen, 2019. "Behaviors and Performance Improvement in a Vendor‐Managed Inventory Program: An Experimental Study," Production and Operations Management, Production and Operations Management Society, vol. 28(7), pages 1818-1836, July.
    11. Christoph Engel, 2011. "Dictator games: a meta study," Experimental Economics, Springer;Economic Science Association, vol. 14(4), pages 583-610, November.
    12. Xiaole Wu & Julie A. Niederhoff, 2014. "Fairness in Selling to the Newsvendor," Production and Operations Management, Production and Operations Management Society, vol. 23(11), pages 2002-2022, November.
    13. J. Michelle Brock & Andreas Lange & Erkut Y. Ozbay, 2013. "Dictating the Risk: Experimental Evidence on Giving in Risky Environments," American Economic Review, American Economic Association, vol. 103(1), pages 415-437, February.
    14. Wu, Diana Yan, 2013. "The impact of repeated interactions on supply chain contracts: A laboratory study," International Journal of Production Economics, Elsevier, vol. 142(1), pages 3-15.
    15. Kota Saito, 2013. "Social Preferences under Risk: Equality of Opportunity versus Equality of Outcome," American Economic Review, American Economic Association, vol. 103(7), pages 3084-3101, December.
    16. Niederhoff, Julie A & Kouvelis, Panos, 2019. "Effective and necessary: Individual supplier behavior in revenue sharing and wholesale contracts," European Journal of Operational Research, Elsevier, vol. 277(3), pages 1060-1071.
    17. Martin A. Lariviere & Evan L. Porteus, 2001. "Selling to the Newsvendor: An Analysis of Price-Only Contracts," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 293-305, May.
    18. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    19. Shaofu Du & Lin Wei & Yangguang Zhu & Tengfei Nie, 2018. "Peer-regarding fairness in supply chain," International Journal of Production Research, Taylor & Francis Journals, vol. 56(10), pages 3384-3396, May.
    20. Sondak, Harris & Tyler, Tom R., 2007. "How does procedural justice shape the desirability of markets?," Journal of Economic Psychology, Elsevier, vol. 28(1), pages 79-92, January.
    21. Michal Krawczyk & Fabrice Le Lec, 2010. "‘Give me a chance!’ An experiment in social decision under risk," Experimental Economics, Springer;Economic Science Association, vol. 13(4), pages 500-511, December.
    22. Liu, Weihua & Wang, Di & Shen, Xinran & Yan, Xiaoyu & Wei, Wanying, 2018. "The impacts of distributional and peer-induced fairness concerns on the decision-making of order allocation in logistics service supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 116(C), pages 102-122.
    23. Xin Geng & Woonghee Tim Huh & Mahesh Nagarajan, 2015. "Fairness Among Servers When Capacity Decisions Are Endogenous," Production and Operations Management, Production and Operations Management Society, vol. 24(6), pages 961-974, June.
    24. Tony Haitao Cui & Jagmohan S. Raju & Z. John Zhang, 2007. "Fairness and Channel Coordination," Management Science, INFORMS, vol. 53(8), pages 1303-1314, August.
    25. Trautmann, Stefan T., 2009. "A tractable model of process fairness under risk," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 803-813, October.
    26. Bergh, Andreas, 2008. "A critical note on the theory of inequity aversion," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1789-1796, October.
    27. Shan Li & Kay-Yut Chen & Ying Rong, 2020. "The Behavioral Promise and Pitfalls in Compensating Store Managers," Management Science, INFORMS, vol. 66(10), pages 4899-4919, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Yadong & Guan, Zhenzhong & Ren, Jianbiao, 2023. "Channel coordination under retailer's (sub)conscious preferences of loss aversion and fairness," Journal of Retailing and Consumer Services, Elsevier, vol. 74(C).
    2. Jiang, Zhong-Zhong & Zhao, Jinlong & Zhang, Yinghao & Yi, Zelong, 2022. "Unraveling the cheap talk’s informativeness of product quality in supply chains: A lying aversion perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    3. Patanjal Kumar & Sachin Kumar Mangla & Yigit Kazancoglu & Ali Emrouznejad, 2023. "A decision framework for incorporating the coordination and behavioural issues in sustainable supply chains in digital economy," Annals of Operations Research, Springer, vol. 326(2), pages 721-749, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jiang, Yanmin & Wu, Xiaole & Chen, Bo & Hu, Qiying, 2021. "Rawlsian fairness in push and pull supply chains," European Journal of Operational Research, Elsevier, vol. 291(1), pages 194-205.
    2. Đula, Ivan & Größler, Andreas, 2021. "Inequity aversion in dynamically complex supply chains," European Journal of Operational Research, Elsevier, vol. 291(1), pages 309-322.
    3. Elena Cettolin & Arno Riedl & Giang Tran, 2017. "Giving in the face of risk," Journal of Risk and Uncertainty, Springer, vol. 55(2), pages 95-118, December.
    4. Breitmoser, Yves & Vorjohann, Pauline, 2018. "Welfare-Based Altruism," Rationality and Competition Discussion Paper Series 89, CRC TRR 190 Rationality and Competition.
    5. Hu, Benyong & Meng, Chao & Xu, Dong & Son, Young-Jun, 2018. "Supply chain coordination under vendor managed inventory-consignment stocking contracts with wholesale price constraint and fairness," International Journal of Production Economics, Elsevier, vol. 202(C), pages 21-31.
    6. Garcia, Thomas & Massoni, Sébastien & Villeval, Marie Claire, 2020. "Ambiguity and excuse-driven behavior in charitable giving," European Economic Review, Elsevier, vol. 124(C).
    7. Bin Miao & Songfa Zhong, 2018. "Probabilistic social preference: how Machina’s Mom randomizes her choice," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(1), pages 1-24, January.
    8. Engel, Christoph & Goerg, Sebastian J., 2018. "If the worst comes to the worst: Dictator giving when recipient’s endowments are risky," European Economic Review, Elsevier, vol. 105(C), pages 51-70.
    9. Li, Zhong-Ping & Wang, Jian-Jun & Perera, Sandun & Shi, Jim (Junmin), 2022. "Coordination of a supply chain with Nash bargaining fairness concerns," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 159(C).
    10. Alexia Gaudeul, 2013. "Social preferences under uncertainty," Jena Economics Research Papers 2013-024, Friedrich-Schiller-University Jena.
    11. Sebastian Olschewski & Marius Dietsch & Elliot A. Ludvig, 2019. "Anti-social motives explain increased risk aversion for others in decisions from experience," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(1), pages 58-71, January.
    12. Bartling, Björn & Engl, Florian & Weber, Roberto A., 2014. "Does willful ignorance deflect punishment? – An experimental study," European Economic Review, Elsevier, vol. 70(C), pages 512-524.
    13. Sarkar, Sumit & Bhala, Shrey, 2021. "Coordinating a closed loop supply chain with fairness concern by a constant wholesale price contract," European Journal of Operational Research, Elsevier, vol. 295(1), pages 140-156.
    14. Stefan Grimm & Martin G. Kocher & Michal Krawczyk & Fabrice Lec, 2021. "Sharing or gambling? On risk attitudes in social contexts," Experimental Economics, Springer;Economic Science Association, vol. 24(4), pages 1075-1104, December.
    15. Bartling Björn & Grieder Manuel & Zehnder Christian, 2014. "Does competition justify inequality?," ECON - Working Papers 158, Department of Economics - University of Zurich, revised Nov 2015.
    16. Verena Kurz & Andreas Orland & Kinga Posadzy, 2018. "Fairness versus efficiency: how procedural fairness concerns affect coordination," Experimental Economics, Springer;Economic Science Association, vol. 21(3), pages 601-626, September.
    17. Sarkar, Sumit, 2019. "Gratitude, conscience, and reciprocity: Models of supplier motivation when quality is non-contractible," European Journal of Operational Research, Elsevier, vol. 277(2), pages 633-642.
    18. Dorian Jullien, 2016. "Under Uncertainty, Over Time and Regarding Other People: Rationality in 3D," GREDEG Working Papers 2016-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    19. Tim Kraft & León Valdés & Yanchong Zheng, 2018. "Supply Chain Visibility and Social Responsibility: Investigating Consumers’ Behaviors and Motives," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 617-636, October.
    20. repec:cup:judgdm:v:14:y:2019:i:1:p:58-71 is not listed on IDEAS
    21. Schmidt, Robert J. & Trautmann, Stefan T., 2019. "Implementing (Un)fair Procedures? Favoritism and Process Fairness when Inequality is Inevitable," Discussion Paper 201-013, Tilburg University, Center for Economic Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:159:y:2022:i:c:s1366554522000321. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.