Supply Chain Research From The Perspective Of Delivery Frequency And Demand Allocation Considering Fairness Preference

This paper absorbs the new achievements of modern behavioral economics based on predecessors’ research work to study the internal mechanism of supply chain decisions and research the relationship among delivery frequency, demand allocation, price and cost. By the introduction of fairness preference, we try to modify the existing research, break the limitations of traditional research, and get some conclusions that are closer to reality.This paper uses mathematical analysis and comparative research method to compare two different assumptions: The first is the rational hypothesis from traditional economics. In this assumption, the players behave on fully self-interest without considering the interests of others; The second is the fairness preference hypothesis. In this condition, the players not only have the self-interest preference, but also have the fairness preference.A game model of supply chain will be constructed. The game players includes a certain amount of suppliers and a single demander. The game is divided into two stages: firstly, suppliers make decision of their delivery frequencies to maximize their profits, and then the single demander makes decision of its demand allocation in order to minimize its cost. The paper is respectively in two cases that either the suppliers are fully rational or they behave on fairness.In the model study based on fully rationality, the optimal pricing decisions mechanism of supply chain will be discussed mainly, and the decision-making solutions of the optimal price is proposed: The relationship between the participation constraint price and the minimum cost price is the decisive factor in the optimal pricing decisions mechanism. when the participation constraint price is smaller than the minimum cost price, the optimal price is the minimum cost price. On the contrary, the optimal price is the minimum price that is bigger than the participation constraint price. furthermore, the viewpoint that the product is the fundamental factor in the optimal pricing decisions is presented.The research considering fairness preference is divided into motivation fairness and distribution fairness according to the classification of fairness. In the former condition, the Rabin utility function including material and motivation fairness is introduced to the supply chain model for researching the situation in which the supplies behave on reciprocal irration. In the latter condition, the F-S model is introduced to the supply chain model for researching the situation in which the suppliers focus on not only their material earnings but also the fairness of their income distribution. There is the difference between the two model research above in the understanding and depiction of fairness, but the conclusions from the two aspects are consistent: Compared with the conclusions under rational men, the result considering fairness( motivation fairness or distribution fairness) are different. First of all, they are able to receive a more equal demand allocation. Even under limiting condition, the suppliers may receive a completely equal demand allocation. It is the perfect embodiment of fairness aspiration. Secondly, the supplies are more passionate to provide delivery frequencies to the demander. Thirdly, the total utility of all the suppliers will decrease, but it is closer to reality. And lastly, the demander’s cost will decrease. Even under limiting condition, the inventory cost will tend to zero. The demander can save its cost through a new method that it cooperates with the suppliers of fairness preferences or cultivates fairness atmosphere among these supplies. These conclusions further enrich the existing research results on internal mechanism in supply chain decisions and are more relevant to economic reality.