Rawlsian fairness in push and pull supply chains

Abstract

We study a dyadic supply chain with firms following the Rawlsian principle of fairness and examine its impact on chain performance and firms’ profits. Different from the inequality-aversion model in the distributional fairness literature, the participants with the Rawlsian fairness concern maximize the profit of the disadvantageous party according to their own fairness criteria. Our results show that the Rawlsian principle adopted by individual firms can achieve not only fairness but also Pareto efficiency. By studying both push and pull supply chains, we find that what matters is the decision sequence between the manufacturer and the retailer. The fair-minded Stackelberg follower can induce the Stackelberg leader, no matter fair-minded or not, to offer a coordinating wholesale price. The chain coordination can be achieved only if the follower is not too demanding (i.e., it does not demand an excessively high portion of chain profit according to its fairness criterion). Additionally, a win-win outcome can be achieved, provided the follower is not too humble. All else being equal, the win-win region is larger with a higher demand uncertainty. Last but not least, we compare our results with those under the inequality-averse fairness model on a push supply chain and find that the parameter ranges of coordination and win-win are wider when the participants follow the Rawlsian principle of fairness.