Supply chain performance for a risk inequity averse newsvendor

This paper studies the impacts of risk inequity averse factor on supply chain performance in the newsvendor context. We apply a downside-risk approach to depict the risk caused by market demand uncertainty and develop the newsvendor model with a risk inequity averse agent. Contrary to the prior literature, we extend inequity averse profits to a broader range by including risk inequity aversion, and we find that risk inequity aversion has large impact on supply chain agents performance. Moreover, we attempt to consider the situation which a risk inequity averse retailer’s information is neglected by the supplier and performed a comparative analysis on different scenarios. If the supplier is only concerned with the risk inequity averse retailer while making decisions, the results range from worsening to improving. To mitigate the negative utilities caused by the factor of risk inequity aversion, we propose a mechanism that the risk-sharing parameter could achieve a better performance for a certain range. Several observations and managerial insights on risk inequity-averse newsvendor models are gathered.