Wholesale price contract under fairness preference with random capacity and random demand

Abstract

This paper investigates the effect of fairness preference on a dyadic supply chain with random capacity and random demand. Based on disadvantageous inequity aversion and advantageous inequity aversion, we establish the models of wholesale price contract with random capacity and stochastic demand. The retailer’s optimal ordering quantity is obtained. In addition, the impact of inequity aversion on the optimal order quantity and the supply chain coordination are also analyzed. We finally present numerical examples to illustrate the theoretical results. The results show that the wholesale price contract can’t achieve supply chain coordination for the risk-neutral retailer. However, when the retailer has extreme advantageous inequity aversion, the wholesale price contract can improve the profit of the whole supply chain and coordinate the supply chain.