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.