Fairness in performance of supply chain and contract design

Suppliers often use contract mechanism to mitigate double marginalization and improve the supply chain's performance. In this study, by considering both loss aversion and extra-gain guilty, we focus on the members' fairness concerns in the contract design, and analyze the influence of fairness concerns on supply chain's profit and profit distribution. We study a one-supplier and two-retailer supply chain setting in which the supplier makes contacts with retailers in sequence based on first-come-first-service principle. Thus, the first retailer exhibit distributional fairness when his supplier's share of total profit is different from his own. The second retailer exhibits distributional fairness and peer-induced fairness when the first retailer's profit is different from his own. Our analysis reveals that the supply chain performance can be further improved by considering extra-gain guilty; the second retailer is likely to have a higher retail price given that the supplier offers the same wholesale price to both retailers, and the second retailer has a lower profit than that of the first retailer when considering the loss aversion with extra-gain guilty.