EURO 2024 Copenhagen
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3044. Dynamics of equity and reciprocity in wholesale-retail price coordination equilibrium

Invited abstract in session WB-7: Behavioural operations and games , stream Behavioural OR.

Wednesday, 10:30-12:00
Room: 1019 (building: 202)

Authors (first author is the speaker)

1. Catarina Bessa
Department of Mechanical Engineering, University Of Coimbra
2. Tânia Pinto Varela
Engeneering and Management, Instituto Superior Tecnico
3. Ana Barbosa-Povoa
Departamento de Engenharia e Gestão, Instituto Superior Técnico, Universidade de Lisboa
4. Cristóvão Silva
Mechanical Engineering, University of Coimbra
5. Samuel Moniz
Mechanical, University of Coimbra

Abstract

Supply chains are portrayals of human behavior. Yet, traditional decision-support tools focus on economic goals, neglecting behavioral preferences such as fairness. Although fairness models are mainly grounded in equity or reciprocity concerns, recent efforts to model stakeholders’ preferences within supply chains only consider the former. Given the inherent unfairness in supply chain systems, a move towards the accuracy of decision-support tools would be the modeling of reciprocity. However, based on two renowned models, a steppingstone was made by finding a coordination mechanism between a supplier and a retailer for a wholesale-retail price contract, in which two main concerns are raised: (1) the equity-based model tends to invariably set the disadvantage unto the supplier; (2) the reciprocity-based model fails to provide fully reciprocal outcomes. While these insights remain valid when profit requirements are jointly unattainable, we argue that these dynamics must be explored across a wider spectrum of parameters. To bridge this gap, a numerical analysis of these models is conducted and its implications for supply chains and its members are discussed. It is crucial to highlight that (1) the equity-based coordination ensures stability in the channel’s profit when the retailer increases his demand for profit while; (2) the reciprocity-based model assures equal profits for both members; and (3) the behavior of both models moves closer as the production costs increase.

Keywords

Status: accepted

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