Coordinating The Fairness Concern Supply Chain With Option Contracts

While most economic models assume that all people or decision makers are ex-clusively motivated by their self-interest,recently,there are increasing evidences sug-gesting that many people are strongly motivated by other regarding preferences and that the human being's concerns for fairness cannot be ignored in social interactions.This phenomenon is extremely obvious in the field of behavioral operation management.Generally,people will care about monetary payoffs as well as fairness compared with other members when he or she makes decisions.In behavioral operation man-agement,such a phenomenon is called fairness concern.Fairness concern exists in the daily life and is considered to be a strong contributing factor of human behavior.A-mong the literature focusing on the fairness concern behavior of supply chain members,an important stream is to investigate the impact of the decision maker's fairness concern behavior on the supply chain coordination.This paper concentrates on fairness concern and applies it to operation management.As an extension of traditional newsvendor model and the standard Stackelberg game,we propose a new game framework considering fairness concern behavior.Specifically,we consider a situation when the fair-minded manufacturer and fair-minded retailer care about not only maximizing the monetary payoff but also comparing the fairness with each other.They choose the strategy that could maximize the utility when they feel unfair.Also,we investigate whether the option contract can coordinate a supply chain when supply chain members have fairness concerns.Specifically,we consider a supply chain consisting of one manufacturer and one retailer.The two members can be either rational or fair-minded.We also explore the condition under which the supply chain can be coordinated by the option contract.While the option contract can coordinate the supply chain when either of the two members is rational,we also find that when both of two members are irrational,the option contract can coordinate the supply chain only under some specific conditions.Furthermore,we investigate whether the two mem-bers will suffer disadvantageous or advantageous inequality in the equilibrium,and we finally conclude some interesting results.Furthermore,we provide some extensions of this research on the basic of existing research results.