Quality investment in supply chain management with fairness-concerned agents

The traditional operation management typically assumes that decision-makers are fully rational. In this paper, the concept of fairness is incorporated in a supply chain coordination to investigate how inequity averseness may affect the supply chain members´ quality investment. We study on a simple twoechelon supply chain making up of one manufacturer as leader and one supplier as follower which plays a Stackelberg game. We then analyze the quality investment of supply chain members under following three circumstances: both the supplier and manufacturer are rational decision-makers, only the supplier concerns about fairness, and only the manufacturer concerns about fairness. The results show that inequity averseness will increase the quota of revenue sharing given by manufacturer and the ratio of manufacturer´s and supplier´s quality investment. But supplier´s disadvantage inequity averseness and manufacturer´s advantage inequity averseness have different impacts on the quality of final product.