Advantageous and disadvantageous inequality fairness concerns: the impact on the single-vendor single-buyer production-inventory system

Abstract

Behaviour diversities and preferences have affected decision making in business. This paper studies the behavioural operations effect in a production inventory system of one vendor and one buyer. Two types of fairness concerns behaviour (advantageous and disadvantageous inequality fairness concerns) of the buyer are taken into account in the decision model. We analyse how these two fairness concerns impact the optimal decision and channel coordination. The result shows several implications. Firstly, the buyer's optimal ordering quantity and expected utility show opposing trend when the buyer has fairness concerns. Secondly, the stronger bargaining power of the vendor results in an increasing buyer's optimal ordering quantity under the advantageous inequality case, but decreasing under the disadvantageous inequality case. Thirdly, the single-vendor single-buyer production-inventory is coordinated under the advantageous inequality case. From our literature search, no study has been done on the field of behavioural operations management from the perspective of this paper. Our study can offer managerial insights for the optimisation of the production-inventory system.