Computers & Industrial Engineering 174 (2022) 108759

Contents lists available at ScienceDirect

Computers & Industrial Engineering

journal homepage: www.elsevier.com/locate/caie

Optimal pricing and service level in supply chain considering misreport

behavior and fairness concern
Shaojian Qu a , Lingli Shu b ,∗, Jingyuan Yao c
a Nanjing University of Information Science & Technology, Nanjing, 210044, China
b
Business School, Sichuan University, Chengdu, 610065, China
c
School of Optical-Electrical and Computer Engineering, University of Shanghai for Science and Technology, Shanghai, 200093, China

ARTICLE INFO ABSTRACT

Keywords: In the supply chain, there exists the phenomenon that misreport behavior and fairness concern coexist. The
Pricing reference point for fairness concern is usually upstream publicly disclosed profit, whereas upstream may hide
Service level its true information. Few research investigates the phenomenon deeply. To address the gap, this paper studies
Stackelberg game
a supply chain consisting of a manufacturer with possible misreport behavior and one retailer with possible
Misreport behavior
fairness concern. Four Stackelberg game supply chain models are constructed. Optimal decisions and profits
Fairness concern
under different scenarios are solved simultaneously and compared, and find that: Firstly, the manufacturer’s
misreporting behavior is harmful to the retailer. Secondly, the retailer’s fairness concern behavior will shorten
the manufacturer’s profit and help itself to face manufacturer’s misreport behavior. Thirdly, face to the retailer’s
fairness concern, the manufacturer can benefit from appropriately misreporting. Through numerical analysis
and extension to one-to-many general situation, the above findings are verified and analyzed.

1. Introduction In a real supply chain, it is common for some enterprises to play

With the development of business practice and academic research,
people gradually find that the decision-making in supply chain man-
agement often deviates from the optimal solution obtained by the
traditional operational research model. This is because traditional op-
erational research models tend to be based on strong assumptions that
decision-makers are perfectly rational. However, in the complex real
life, decision-makers often have a variety of psychological activities
when making decisions, such as the misreport cost and fairness concern
behavior considered in this paper, which lead to decision-making bias.
Fairness problem is crucial and popular in the practice of supply
chain operations and management (Li, Cui, Li, Xu, & Xu, 2019; Tao,
Shao, Guan, Ho, & Talluri, 2020). Players in the supply chain have
strong feelings about the fairness of firms profits. In supply chain
operation, the level of fairness concern, i.e., fairness concern factor, of
enterprises also belongs to the private information of enterprises. An
actual example is∶ China’s largest hosiery company, Lang-sha Group,
broke up the partnership with Wal-Mart in 2007 due to unfair profit
allocation. Analogously, an important distributor of P ς G, Xuzhou
Wanji Trading of China, terminated their transactions because they
believed P ς G was unfairly taking an incommensurate share of the
profit (Nie & Du, 2017).
dominant roles and obtain enormous economic benefits. In this situa-
tion, it is significative to consider the impacts of fairness concern on
supply chain. For example, Guan, Ye, and Yin (2020) studied a supply
chain coordination problem considering the impacts of fairness concern
of members on the supply chain. Moreover, fairness concern is verified
that it can reduce system efficiency in a supply chain with fairness-
concern manufacturer and e-commerce platform (Wang, Yu, & Shen,
2019). Generally, the reference point for retailers’ fairness concerns
is based on the upstream publicly disclosed revenue, but in reality,
upstream has incentives to hide or misreport its own cost information,
which is private information (Yang & Anderson, 2014) .
With the development of information technology, information has
become a key point to success in supply chain operation. Because of
knowledge monopolies, industry barriers or conflicts of interest, each
enterprise usually withholds some important information from other
cooperative firms, i.e. asymmetric information. Information is of great
value to enterprises, such as enterprise production cost information,
fairness concern information. Enterprises with more information have
an advantage in business activities, while those with less information
will be at a disadvantage. Information asymmetry will be caused by
the difference in detail, timeliness and quality of information obtained
by each subject. One of the main reasons for this phenomenon is

∗ Corresponding author.
E-mail address: linglishai@163.com (L. Shu).

https://doi.org/10.1016/j.cie.2022.108759

Available online 9 November 2022

0360-8352/© 2022 Elsevier Ltd. All rights reserved.
S. Qu et al.
the monopoly of the information dominant party. In order to obtain
more economic benefits, the information dominant party will hide
information or provide false information to the inferior party. Cost
is a key information in determining decisions in a supply chain Yan,
Wang, Liu, and Liu (2016), the upstream misreporting production cost
mentioned in the previous paragraph is also for profit.
Through a large number of experiments, scholars have proved that
the decision-making subject is often affected by psychological fac-
tors, such as misreporting behavior and fairness concern factor, in the
process of decision-making, and the information is the private informa-
tion of the decision-making subject (Guth, Schmittberger, & Schwarze,
1982; Kahneman, Knetsch, & Thaler, 1986). In actual supply chain,
the existence of asymmetric information caused by the psychological
factors of decision makers is very common. The upstream player, for
example, thinks that by hiding and even highly lying about its own cost,
it can set higher wholesale prices and bring in more profits from the
downstream. The various cost could be production cost, management
cost, operating cost and so on. The asymmetric information has been
proved to be one of the causes of supply chain efficiency reduction (Su,
Guo, & Wang, 2014). Many studies confirmed that asymmetric in-
formation has significant impacts on the decisions of supply chain
members (Xia & Niu, 2020; Zhang, Yuan, & Zhang, 2020; Zhou, Liao,
Shen, & Yang, 2020), such as the pricing, production and order quantity
decisions. Yan et al. (2016) analyzed decisions in a retailer-dominated
dual-channel supply chain considering cost misreporting. Yang, Ji, and
Zheng (2016) investigated the misreporting behaviors of the supply
chain members and their influences on supply chain performance. Li
and Zhu (2019) discussed the impacts of asymmetric cost information
on decisions-making in green food supply chain.
With the development of social economy and information technol-
ogy, it is necessary to consider decision-makers’ psychological behav-
iors in the actual supply chain. In particular, some behavioral factors
cause information asymmetry in supply chain. As studied in previous
literature (Li & Zhu, 2019; Yan et al., 2016; Yang et al., 2016), there
are many problems caused by subjective reasons in real life. In order
to solve these problems scientifically and reasonably, we must consider
the complex situations caused by behavioral factors. However, few
literatures studied the impacts of misreport behavior and fairness con-
cern on the chain simultaneously. Thus this paper deeply discusses the
impacts of decision-makers’ two psychological behaviors on decisions
in the supply chain. And this paper designs that fair concern behavior
is symmetric, while misreport behavior is asymmetric. Different from
previous literatures (Cui, Raju, & Zhang, 2007; Qian, Chan, Zhang, Yin,
& Zhang, 2020; Yan, Wu, Jin, & He, 2020), this paper considers a supply
chain in which the manufacturer may misreport costs and the retailer
may have concerns about fairness, and constructs four supply chain
models respectively.
Motivated by these issues, this paper addresses the following re-
search questions:
• Research question 1: What is the impact of the manufacturer’s
misreport behavior and the retailer’s fairness concern on the
optimal decisions of supply chain members in different cases?
• Research question 2: In the face of fair-neutral or fair-concerned
retailer, does the misreport behavior benefit manufacturer?
• Research question 3: How does the retailer strike a balance be-
tween the service level and service cost to get more profit or
utility?
Due to the existence of behavioral science in reality and the fact that
it leads to decision error, behavioral factors are necessarily considered
in supply chain. Although some scholars have extensively studied mis-
report behaviors and fairness concerns in supply chains, their focus are
more on traditional supply chain and generally consider only one fac-
tor. Our study differs from the existing literature and the contributions
are as follows:
2
Computers & Industrial Engineering 174 (2022) 108759
Firstly, modern consumers pay more attentions on the services they
received while many enterprises are also trying to improve their service
level to attract consumers and thus promote sales. In this paper, we
design a dyadic supply chain under price-sensitive and service-sensitive
consumer demand. This approach is close to reality, since consumer
demand is affected not only by pricing but also by service level.
Secondly, our study considers two psychological behaviors, and it is
close to reality for complex economic society. Manufacturer’s misreport
behavior and retailer’s fairness concern are considered simultaneously
in supply chain. The impacts of misreport behavior and fairness concern
on players are quantified. Four different models are constructed for
this purpose, which consist of symmetric benchmark-model without
behavior, an asymmetric model considering the manufacturer’s mis-
reporting behavior, a symmetric model with the retailer’s fairness
concerning, and an asymmetric decision-making model simultaneously
considering both two behaviors. In addition, the optimal decisions of
the players are calculated and the comparisons between four models
are presented. In addition, we explore in depth whether manufacturer’s
misreport behavior can increase its profit and how retailer can get the
decision-making balance.
Thirdly, we generalize the results in the one-to-many supply chain
model, which is more suitable for complex reality. By comparing the
optimal strategies in one-to-many supply chain model and one-to-one
supply chain model, the effectiveness and correctness of the results can
be verified to some extent.
The remainder of the article is organized as follows. In Section 2,
literature reviews are presented. In Section 3, we briefly describe the
problem and provide some necessary assumptions. Next, four models
are established and corresponding optimal strategies are solved. The
results of the different models are compared and analyzed in Section 4
and a numerical analysis is conducted in Section 5 to verify the pro-
posed models. In Section 6, we generalize the conclusion to the general
case, i.e. one-to-many supply chain. Finally, Section 7 concludes the
paper by discussing the contributions, some management implications,
limitations, and future research issues.
2. Literature reviews
This paper mainly uses game theory and behavioral science to con-
struct a supply chain decision model under the influence of behavioral
factors, and studies the optimal decision of supply chain node enter-
prises under the influence of different behavioral factors. Therefore,
the research literature related to this paper mainly covers two aspects:
optimal strategy in supply chain and behavioral factors in supply chain.
2.1. Optimal strategy in supply chain
Supply chain optimal strategy refers to the decision-making scheme
that can maximize profits made by each node enterprise according to
the current social environment, strategies adopted by upstream and
downstream enterprises, consumer demand, and national policies in
each process of the supply chain. Inevitably, the optimal strategy of
nodal enterprises will not only be affected by the above factors, but also
by other factors, such as behavior factors. As is known to all, enterprises
at different nodes in the supply chain have different objects to make
optimal decisions. For example, in practical life, manufacturers need
to decide the production volume, wholesale price, etc. Online retailers
need to decide on retail prices, free shipping policies, shipping policies,
return policies, etc.
The discussion about optimal decisions in supply chain is of pric-
ing strategy (Chen, Zhao, Yan, & Li, 2020; Ma, Lin, & Zhao, 2016),
service (Zhang & Wang, 2018; Zhou & Chen, 2020), logistics (Pankaj,
Anurag, Sachin, & Ibrahim, 2020; Zhang, Rong, & Wang, 2020), ship-
ping policy (Qu et al., 2019), consumer behavior (Feng, Govindan, & Li,
2017) and so on. Li, Liu, Teng, and Tsao (2019) established a supply
chain inventory model integrating marketing, operation and finance.
S. Qu et al.
Retailers simultaneously determined optimal pricing, replenishment
cycle and out-of-stock interval to maximize total profit. Liu et al.
studied how the functional logistics service provider and the logistics
service integrator will make decisions on the quality of logistics service
provided to consumers in the logistics service supply chain when they
promise to guarantee service quality defects (Liu & Xie, 2013). In
reality, the price problem is always considered in conjunction with
other factors. Rabinovich et al. confirmed the intuitive logic view of the
relationship between pricing and promised product distribution service
performance by examining a sample of over 2000 retail transactions
with customers (Rabinovich, Rungtusanatham, & Laseter, 2008). Hua,
Wang, and Cheng (2010) showed that service quality has a strong
impact on the pricing strategies and profits of manufacturers and retail-
ers. The literatures enrich the research on supply chain management.
Nevertheless, they did not consider the service level impacts of the
enterprise on the supply chain. In fact, modern consumers have a
strong awareness of service. When placing orders, they will also pay
attentions to the service provided by retailing enterprises. With the
development of industry, low price can hardly become competitive
advantage. Retailing companies can only survive by offering distinctive
and differentiated services. Therefore, it is significant to study the
impact of service level on retail companies.
This paper exactly considers the effort cost of the retailer paid to
improve its own service level. In this paper, we consider the positive
correlation between the service level and consumer demand.
2.2. Behavioral factors in supply chain
In order to eliminate the deviation between the traditional model
and the actual situation, more and more scholars have integrated
behavioral factors with the traditional model, which are mainly divided
into behavioral factors of decision-makers and behavioral factors of
consumers.
Some scholars have conducted a relatively complete study on the
behavioral factors of decision makers. For example, Cui, Kong, and
Pourghannad (2020) compares the situations in which retailers are
bounded rational and fully rational respectively, and finds that when
retailers are bounded rational, suppliers adopting wholesale price con-
tracts can increase their own profits and supply chain profits more
than buy-back and revenue-sharing contracts. Cui et al. (2007) in-
troduced the concept of fairness into traditional binary channels to
study the influence of fairness on channel coordination. They found
that when channel members pay attention to fairness, manufacturers
can use wholesale price contracts to coordinate supply chain profits.
Qin and Shao (2019) studied the behavior of manufacturers’ false cost
statement and proved that this behavior factor would aggravate the
unfair distribution of supply chain, thus further deviating from the
optimal state of supply chain operation. Yan et al. (2020) introduced
the manufacturer’s behavioral tendency of fairness concerns to examine
the fresh agricultural product supply chain and the optimal decision-
making problem. Qian et al. (2020) focused on a channel coordination
problem in a two-echelon sustainable supply chain involving one social
responsible manufacturer and one fair-minded retailer to verify that the
fairness behavior promotes the retailer’s profit. The above literatures
analyze the behavior factors of decision makers based on single or dual
sales channels, and study the coordination problems of supply chain
and profit distribution. Research on consumer behavior factors is also
relatively complete. For example, Han and Liu (2020) constructed a
supply chain optimization model for high-quality products, which took
into account consumers’ preferences for product quality at different
levels. Research shows that as consumers prefer high-quality products,
companies tend to produce more high-quality products. But when
consumers’ quality preferences reach a certain level, it may be better for
the industry if some companies stop producing low-quality products.
Different from previous studies, this paper comprehensively consid-
ers the influence of two behavior factors on the supply chain nodal
enterprises, and carries out mathematical reasoning and numerical
analysis.
3
Computers & Industrial Engineering 174 (2022) 108759
3. Models
In this section, we first introduce the background of the problem in
this paper. Next, we study the influence of manufacturer’s asymmetric
misreport behavior and retailer’s fair concern behavior in the supply
chain, and obtain the optimal decisions and profit expression of each
member under the influence of different behavioral factors.
3.1. Problem description
Consider a supply chain system composed of single manufacturer
and single retailer, which is assumed to only sell one kind of prod-
uct. The manufacturer has private product cost information and the
retailer has private fairness concern information. Fig. 1 demonstrates
the relationship of total players. The chronology of events is described
as follows. At the beginning of selling season, the retailer places order
quantity 𝑞 the same as consumers’ demand to manufacturer. Then the
manufacturer produces a corresponding number of products and sells
them to retailer at a wholesale price 𝑤. Later, consumers can buy
product from retailer at a retailing price 𝑝. And the important reason
of choosing product for the consumer is by ensuring the service level
of retailer. The higher service level is, the higher consumer demand
is. Therefore, this paper considers the effect of the service level to the
supply chain. The consumer demand 𝐷 is affected by retailing price 𝑝
and service level 𝜙, i.e. 𝐷 = 𝑎−𝑏𝑝+𝜂𝜙. So the retailer needs to increase
service investment to improve its service level and to make decisions
about optimal retailing price and service level. Effort cost is used to
characterize the retailer’s investment costs of service level. Similar to
Qin and Shao (2019), the manufacturer may misreport its produce cost
𝑐, the reporting factor is 𝜃𝑚 . The misreporting cost is 𝑐𝑚 = (1 + 𝜃𝑚 )𝑐.
‘𝜃𝑚 = 0’ denotes the manufacturer reports its own cost information
faithfully. Fairness concern factor of the retailer is 𝜆, ‘𝜆 = 0’ denotes the
retailer is fairness neutral. To simplify, Table 1 summarizes the main
notations in this paper.
The models built in this paper are based on the following
assumptions:
Assumption 1. We assume that the value of the parameter is shared
by all participants in the supply chain, except for the manufacturer’s
misreporting factor and true unit production cost.
Assumption 2. We assume the demand is negatively correlated with
retailing price and positively correlated with service level. This assump-
tion is consistent with the literature (Zhang, Fan, & Tian, 2020).
Assumption 3. In terms of practical significance, assuming that basic
market demand 𝑎 is much greater than the other parameters, i.e., 𝑎 ≫
𝑏, 𝑐, 𝑐𝑚 , 𝜆, 𝜃𝑚 , 𝜃𝑚2 .
Assumption 4. We assume that the manufacturer is fairness-neutral.
Assumption 5. In keeping with its misreporting behavior, the manu-
facturer sets its wholesale price based on publicly disclosed profit.
3.2. Basic model: NN model
To get a benchmark compared to other models, basic model is
established, denoted as NN model. Under NN model, all information
in the supply chain is symmetric. The manufacturer reports its own
production cost faithfully and the retailer only pays attention to its own
profit distribution. As we know, the consumer demand depends upon
retailing price and service level, i.e. 𝐷 = 𝑎 − 𝑏𝑝 + 𝜂𝜙, where 𝑎, 𝑏 and 𝜂
are positive constants.
Considering that the retailer is the follower and the manufacturer is
the leader, both the manufacturer and the retailer aim at maximizing
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

𝜕 2 𝜋𝑟1 (𝑝, 𝜙) 𝜕 2 𝜋𝑟2 (𝑝, 𝜙)

= = 𝜂. (7)
𝜕𝑝𝜕𝜙 𝜕𝜙𝜕𝑝
) (
−2𝑏 𝜂 2
The Hessian matrix of Eq. (1) is 𝐻1 = . When 𝑀 > 𝜃2𝑏 ,
𝜂 −𝑀
we can derive Hessian matrix 𝐻1 is negative definite matrix. Hence, the
retailer’s profit function is convex. By making the above first derivative
conditions equal to 0, the optimal decisions of the retailer can be solved
as follows:
( 2 )
𝜂 − 𝑏𝑀 𝑤 − 𝑀𝑎
𝑝∗1 = , (8)
𝜂 2 − 2𝑏𝑀
𝜂𝑏𝑤 − 𝜂𝑎
𝜙∗1 = . (9)
𝜂 2 − 2𝑏𝑀
For the manufacturer, we substitute the optimal decisions, Eqs. (8)
and (9) of the retailer into the expression of the manufacturer’s profit
function, then take the partial derivative of the decision variable 𝑤, and
Fig. 1. The relationships of players.
the following calculation process can be obtained:
𝑏𝑀 (𝑏𝑤 − 𝑎)
Table 1 𝜋𝑚1 (𝑤) = (𝑤 − 𝑐) , (10)
Notations. 𝜂 2 − 2𝑏𝑀
Notations Definitions
𝜕𝜋𝑚1 (𝑤) −𝑎𝑏𝑀 − 𝑐𝑏2 𝑀 2𝑀𝑏2 𝑤
𝑎 Basic market demand = + , (11)
𝑏 The price–demand sensitivity coefficient
𝜕𝑤 𝜂 2 − 2𝑏𝑀 𝜂 2 − 2𝑏𝑀
𝜂 The service level–demand sensitivity coefficient
𝜕 2 𝜋𝑚1 (𝑤) 2𝑀𝑏2
𝜃𝑚 Misreport factor of the manufacturer = . (12)
𝜆 Fairness concern factor of the retailer 𝜕𝑤2 𝜂 2 − 2𝑏𝑀
𝑐 Unit true producing cost of manufacturer 2
𝑐𝑚 Unit misreporting production cost of manufacturer When 𝑀 > 𝜃2𝑏 , the optimal wholesale price decided by the manu-
𝐷 The market demand/the order quantity of retailer facturer is Eq. (13),
𝑀 The investment cost coefficient of service level
The profit of the retailer 𝑎 + 𝑏𝑐
𝜋𝑟 𝑤*1 = . (13)
𝜋𝑚 The publicly disclosed profit of the manufacturer 2𝑏
𝜋𝑚−𝑎𝑐𝑡𝑢𝑎𝑙 The actual profit of the manufacturer
Substituting Eq. (13) into Eqs. (8) and (9), the optimal decisions of
Decision variables retailer can be derived, which are given by Eqs. (14)–(15).
𝑝 Unit selling price of retailer ( 2 )
𝜙 The service level of retailer provided to consumers 𝜂 − 𝑏𝑀 (𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀
𝑝*1 = ( ) , (14)
𝑤 The wholesale price of manufacturer 2𝑏 𝜂 2 − 2𝑏𝑀
(𝑏𝑐 − 𝑎) 𝜂
𝜙*1 = ( ). (15)
2 𝜂 2 − 2𝑏𝑀
their respective profits. In model NN, retailers and manufacturers are
faced with the following questions: Substitute Eqs. (13)–(15) into Eqs. (1)–(2), we can get the profits of
1 retailer and manufacturer, which are shown by Eqs. (16)–(17).
𝜋𝑟1 (𝑝, 𝜙) = (𝑝 − 𝑤) (𝑎 − 𝑏𝑝 + 𝜂𝜙) − 𝑀𝜙2 , (1)
2
𝑀(𝑏𝑐 − 𝑎)2
𝜋𝑟1 (𝑝, 𝜙) = ( ), (16)
𝜋𝑚1 (𝑤) = (𝑤 − 𝑐) (𝑎 − 𝑏𝑝 + 𝜂𝜙) . (2) 8 2𝑏𝑀 − 𝜂 2
Wherein, according to Shu, Qu, and Wu (2020), the service cost of 𝑀(𝑏𝑐 − 𝑎)2
𝜋𝑚1 (𝑤) = ( ). (17)
the retailer can be expressed as 12 𝑀𝜙2 , denoted as effort cost. Since the 4 2𝑏𝑀 − 𝜂 2
operating parameters of all participants are public, the manufacturer
knows the retailer’s optimal price decision function and optimal service By comparing Eqs. (16) and (17), it can be found that in model NN,
level decision function when making decisions on wholesale prices. the manufacturer always gains twice the profit of the retailer.
Using the backward induction, based on Eqs. (1)–(2), the manufacturer
decides the optimal wholesale price, and then the retailer decides the 3.3. Model with misreport cost: MN model
retail price and service level based on the wholesale price given by the
manufacturer. In this situation, misreporting behavior of the manufacturer is con-
Due to the calculation process is simple, detailed calculation process sidered, denoted as MN model. Due to information asymmetry, the
can refer to the literature (Shu et al., 2020). Firstly, for retailer, retailer does not know the manufacturer exaggerates its own produc-
according to Eq. (1), the calculation process is as follows. tion cost and make decisions based on the wholesale price set by
𝜕𝜋𝑟1 (𝑝, 𝜙) the manufacturer. At this time, the manufacturer’s publicly disclosed
= (𝑎 + 𝜂𝜙) + 𝑏𝑤 − 2𝑏𝑝, (3)
𝜕𝑝 profit function changes to Eq. (18). In keeping with its misreporting
𝜕𝜋𝑟1 (𝑝, 𝜙) behavior, the manufacturer uses this publicly disclosed profit function
= 𝜂 (𝑝 − 𝑤) − 𝑀𝜙, (4) to determine its wholesale price. The profit function of retailer is
𝜕𝜙
Eq. (19), which is the same as Eq. (1).
𝜕 2 𝜋𝑟1 (𝑝, 𝜙)
= −2𝑏, (5) 𝜋𝑚2 (𝑤) = (𝑤 − 𝑐𝑚 )(𝑎 − 𝑏𝑝 + 𝜂𝜙), (18)
𝜕𝑝2
𝜕 2 𝜋𝑟1 (𝑝, 𝜙)
= −𝑀, (6) 1
𝜋𝑟2 (𝑝, 𝜙) = (𝑝 − 𝑤) (𝑎 − 𝑏𝑝 + 𝜂𝜙) − 𝑀𝜙2 . (19)
𝜕𝜙2 2

4
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

Similar to NN Model, it is solved by backward induction. First, for 3.4. Model with fairness concern: NF model
retailers, according to Eq. (19), the calculation process is as follows:
In this model, the retailer pays considerable attention to the income
𝜕𝜋𝑟2 (𝑝, 𝜙)
= (𝑎 + 𝜂𝜙) + 𝑏𝑤 − 2𝑏𝑝, distribution in supply chain. It focuses on the income gap between
𝜕𝑝 itself and manufacturer, denoted as NF model. According to Fehr
and Schmidt (1999), fairness concerning is modeled as self-centered
𝜕𝜋𝑟2 (𝑝, 𝜙)
= 𝜂 (𝑝 − 𝑤) − 𝑀𝜙, inequality aversion, including disadvantageous inequality aversion and
𝜕𝜙 advantageous inequality aversion. In this paper, the manufacturer is
considered as the leader of the supply chain. Furthermore, it has been
𝜕 2 𝜋𝑟2 (𝑝, 𝜙)
= −2𝑏, confirmed in the model NN that manufacturer’s profit is greater than
𝜕𝑝2 retailer’s. Hence, we only consider the situation with disadvantageous
inequality aversion, i.e., 𝜋𝑚 > 𝜋𝑟 .
𝜕 2 𝜋𝑟2 (𝑝, 𝜙)
= −𝑀, Under this symmetric situation, the manufacturer reports its true
𝜕𝜙2 cost and knows retailer’s fairness concern behavior. Their profit func-
tions are respectively given by Eqs. (25)–(26).
𝜕 2 𝜋𝑟2 (𝑝, 𝜙) 𝜕 2 𝜋𝑟2 (𝑝, 𝜙)
= = 𝜂.
𝜕𝑝𝜕𝜙 𝜕𝜙𝜕𝑝 𝜋𝑚3 (𝑤) = (𝑤 − 𝑐) (𝑎 − 𝑏𝑝 + 𝜂𝜙) , (25)
2
When 𝑀 > 𝜃2𝑏 , we can derive Hessian matrix 𝐻2 is negative definite 1
𝜋𝑟3 (𝑝, 𝜙) = (𝑝 − 𝑤) (𝑎 − 𝑏𝑝 + 𝜂𝜙) −𝑀𝜙2 . (26)
matrix. Hence, the retailer’s profit function is convex. By making the 2
2
above first derivative conditions equal to 0, we can get when 𝑀 > 𝜃2𝑏 , Similar to the literature (Zheng, Liu, Li, & Huang, 2019), the utility
the optimal decisions of the retailer can be solved as follows: function of the fairness concerned retailer is given by Eq. (27).
( 2 )
𝜂 − 𝑏𝑀 𝑤 − 𝑀𝑎 𝑢3𝑟 = 𝜋𝑟3 − 𝜆(𝜋𝑚3 − 𝜋𝑟3 ). (27)
𝑝∗2 = ,
𝜂 2 − 2𝑏𝑀 Where 𝜆 ≥ 0 denotes the coefficient of fairness concern of the
retailer. When 𝜆 = 0, the retailer only focuses on its own profit Fehr
𝜂𝑏𝑤 − 𝜂𝑎
𝜙∗2 = . and Schmidt (1999), Zheng et al. (2019). Substitute Eqs. (25)–(26) into
𝜂 2 − 2𝑏𝑀
Eq. (27), we can get Eq. (28).
For the manufacturer, we substitute the above optimal decisions of 1
𝑢3𝑟 = (𝑎 − 𝑏𝑝 + 𝜂𝜙)[(𝑝 − 𝑤) − 𝜆(2𝑤 − 𝑐 − 𝑝)] − (1 + 𝜆)𝑀𝜙2 . (28)
the retailer obtained into the expression of the manufacturer’s profit 2
function, then take the partial derivative of the decision variable 𝑤, For retailer, from Eq. (28),
and the following calculation process can be obtained:
𝜕𝑢3𝑟
( ) 𝑏𝑀 (𝑏𝑤 − 𝑎) = −2𝑏(1 + 𝜆)𝑝 + (𝑎 + 𝜙𝜂)(1 + 𝜆) − 𝑏𝑐𝜆 + 𝑏𝑤(2𝜆 + 1), (29)
𝜋𝑚2 (𝑤) = 𝑤 − 𝑐𝑚 , 𝜕𝑝
𝜂 2 − 2𝑏𝑀
𝜕 2 𝑢3𝑟
= − 2𝑏(1 + 𝜆), (30)
𝜕𝜋𝑚2 (𝑤) −𝑎𝑏𝑀 − 𝑐𝑚 𝑏2 𝑀 2𝑀𝑏2 𝑤 𝜕𝑝2
= + ,
𝜕𝑤 𝜂 2 − 2𝑏𝑀 𝜂 2 − 2𝑏𝑀 𝜕𝑢3𝑟
= −𝑀(1 + 𝜆)𝜙 + 𝑝𝜂(1 + 𝜆) + 𝑐𝜆𝜂 − 𝜂𝑤(1 + 2𝜆), (31)
𝜕𝜙
𝜕 2 𝜋𝑚2 (𝑤) 2𝑀𝑏2
= . 𝜕 2 𝑢3𝑟
𝜕𝑤2 2
𝜂 − 2𝑏𝑀 = − 𝑀(1 + 𝜆), (32)
𝜕𝜙2
𝜃2
When 𝑀 > 2𝑏
,
the optimal wholesale price decided by the manu- 𝜕 2 𝑢3𝑟 𝜕 2 𝑢3𝑟
facturer is Eq. (20), = = 𝜂(1 + 𝜆). (33)
𝜕𝑝𝜕𝜙 𝜕𝜙𝜕𝑝
𝑎 + 𝑏𝑐(1 + 𝜃𝑚 ) ( )
𝑤*2 = . (20) −2𝑏(1 + 𝜆) 𝜂(1 + 𝜆)
2𝑏 The hessian matrix is given by 𝐻 = .
𝜂(1 + 𝜆) −𝑀(1 + 𝜆)
2
Substituting Eq. (20) into Eqs. (18) and (19), the optimal decisions When 𝑀 > 𝜂2𝑏 , Eq. (28) is convex function. By setting the first-order
of retailer can be derived, which are given by Eqs. (21)–(22). conditions, Eq. (29) and (31), to zero and solve the equations, we can
𝜂 2 (𝑎 + 𝑏𝑐𝑚 ) − 𝑏𝑀(3𝑎 + 𝑏𝑐𝑚 ) obtain the optimal retailing price and service level.
𝑝*2 = ( ) , (21)
2𝑏 𝜂 2 − 2𝑏𝑀 (2𝜆 + 1)𝑤(𝜂 2 − 𝑏𝑀) − 𝑀𝑎(1 + 𝜆) + 𝑀𝑏𝑐𝜆 − 𝑐𝜆𝜂 2
𝑝*3 = , (34)
(1 + 𝜆)(𝜂 2 − 2𝑏𝑀)
(𝑏𝑐𝑚 − 𝑎)𝜂
𝜙*2 = , (22) 𝑏𝜂𝑤(2𝜆 + 1) − 𝑎𝜂(1 + 𝜆) − 𝑏𝑐𝜆𝜂
2(𝜂 2 − 2𝑏𝑀) 𝜙*3 = . (35)
(1 + 𝜆)(𝜂 2 − 2𝑏𝑀)
Substitute Eqs. (20)–(22) into Eq. (19), we can get the retailer’s For the manufacturer, substitute Eqs. (34)–(35) to Eq. (25), then set
profit under model MN, which is shown by Eq. (23). the first-order condition of the manufacturer’s profit to zero, we can
( )2 obtain the optimal wholesale price shown as Eq. (36).
2
𝑀[𝑎 − 𝑏𝑐 1 + 𝜃𝑚 ]
𝜋𝑟 (𝑝, 𝜙) = ( ) . (23) 𝑎(𝜆 + 1) + 𝑏𝑐(3𝜆 + 1)
8 2𝑏𝑀 − 𝜂 2 𝑤*3 = . (36)
2𝑏(2𝜆 + 1)
It is worth noting that the manufacturer’s real profit calculation Then substitute optimal wholesale price 𝑤∗ to Eqs. (34)–(35), opti-
formula is the same as Eq. (2), so the optimal strategies, i.e. Eqs. (20)– mal retailing price and service level are given by
(22), can be substituted into Eq. (2) to obtain the manufacturer’s actual
(𝜂 2 − 𝑏𝑀)(𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀
optimal profit, which is presented by Eq. (24). 𝑝*3 = , (37)
2𝑏(𝜂 2 − 2𝑏𝑀)
( )
𝑀[𝑎 + 𝑏𝑐(𝜃𝑚 − 1)][𝑎 − 𝑏𝑐 𝜃𝑚 + 1 ] (𝑏𝑐 − 𝑎) 𝜂
2
𝜋𝑚−𝑎𝑐𝑡𝑢𝑎𝑙 (𝑤) = ( ) . (24) 𝜙*3 = ( ). (38)
4 2𝑏𝑀 − 𝜂 2 2 𝜂 2 − 2𝑏𝑀

5
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

Table 2
Optimal solutions and profits under four models.
Model NN Model MN Model NF Model MF
( 2 )
𝜂 − 𝑏𝑀 (𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀 (𝜂 2 − 𝑏𝑀)[𝑎 + 𝑏𝑐(𝜃𝑚 + 1)] − 2𝑎𝑏𝑀 2
(𝜂 − 𝑏𝑀)(𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀 (𝜂 2 − 𝑏𝑀)[𝑎 + 𝑏𝑐(𝜃𝑚 + 1)] − 2𝑎𝑏𝑀
𝑝∗ ( ) ( )
2𝑏 𝜂 2 − 2𝑏𝑀 2𝑏 𝜂 2 − 2𝑏𝑀 2𝑏(𝜂 2 − 2𝑏𝑀) 2𝑏(𝜂 2 − 2𝑏𝑀)
(𝑏𝑐 − 𝑎) 𝜂 [𝑏𝑐(1 + 𝜃𝑚 ) − 𝑎]𝜂 (𝑏𝑐 − 𝑎) 𝜂 𝜂[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)]
𝜙∗ ( ) ( )
2 𝜂 2 − 2𝑏𝑀 2(𝜂 2 − 2𝑏𝑀) 2 𝜂 2 − 2𝑏𝑀 2(2𝑏𝑀 − 𝜂 2 )
𝑎 + 𝑏𝑐 𝑎 + 𝑏𝑐(1 + 𝜃𝑚 ) 𝑎(𝜆 + 1) + 𝑏𝑐(3𝜆 + 1) 𝑎(𝜆 + 1) + 3𝜆𝑏𝑐(𝜃𝑚 + 1)
𝑤∗
2𝑏 2𝑏 2𝑏(2𝜆 + 1) 2𝑏(2𝜆 + 1)
( )
𝑀(𝑏𝑐 − 𝑎)2 𝑀[𝑎 + 𝑏𝑐(𝜃𝑚 − 1)][𝑎 − 𝑏𝑐 1 + 𝜃𝑚 ] 𝑀(𝑎 − 𝑏𝑐)2 (𝜆 + 1) 𝑀[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)][𝑎 − 2𝑏𝑐 + 𝑎𝜆 − 𝑏𝑐𝜆 + 3𝜃𝑚 𝑏𝑐𝜆]
𝜋𝑚−𝑎𝑐𝑡𝑢𝑎𝑙 ( ) ( )
4 2𝑏𝑀 − 𝜂 2 4 2𝑏𝑀 − 𝜂 2 4(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 ) 4(2𝜆 + 1)(2𝑏𝑀 − 𝜂 2 )
( )2
𝑀(𝑏𝑐 − 𝑎)2 𝑀[𝑎 − 𝑏𝑐 1 + 𝜃𝑚 ] 𝑀(𝑎 − 𝑏𝑐)2 (4𝜆 + 1) 𝑀[𝑎 − 𝑏𝑐(1 + 𝜃𝑚 )][𝑎(4𝜆 + 1) + (1 + 𝜃𝑚 )(1 − 4𝜆)𝑏𝑐]
𝜋𝑟 ( ) ( )
8 2𝑏𝑀 − 𝜂 2 8 2𝑏𝑀 − 𝜂 2 8(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 ) 8(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 )
𝑀(𝑎 − 𝑏𝑐)2 (𝜆 + 1) 𝑀(𝜆 + 1)[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)]2
𝑢𝑟 / /
8(2𝑀𝑏 − 𝜂 2 ) 8(2𝑀𝑏 − 𝜂 2 )

Substitute optimal solutions into Eqs. (25)–(27), optimal actual 4. Comparative analysis
profits of players and utility of retailer can be presented by
In this section, by comparing optimal strategies and profits of four
𝑀(𝑎 − 𝑏𝑐)2 (𝜆 + 1)
𝜋𝑚3 = , (39) models in Section 3, Propositions 1–4 can be drawn. As for NF model
4(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 ) and MF model, we only consider the utility of the retailer for it concerns
𝑀(𝑎 − 𝑏𝑐)2 (4𝜆 + 1) fairness rather than the profit.
𝜋𝑟3 = , (40)
8(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 )
Proposition 1.
𝑀(𝑎 − 𝑏𝑐)2 (𝜆 + 1) (1)When 0 < 𝜆 ≤ 1,
𝑢3𝑟 = . (41)
8(2𝑀𝑏 − 𝜂 2 ) 1
(𝑖). 𝑊 ℎ𝑒𝑛 0 < 𝜃𝑚 < , 𝑤* < 𝑤*3 < 𝑤*1 < 𝑤*2 .
3𝜆 4
1 (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 *
3.5. Model with misreport cost and fairness concerns: MF model (𝑖𝑖). 𝑊 ℎ𝑒𝑛 < 𝜃𝑚 < , 𝑤3 < 𝑤*4 < 𝑤*1 < 𝑤*2 .
3𝜆 3𝜆𝑏𝑐
(𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 *
(𝑖𝑖𝑖). 𝑊 ℎ𝑒𝑛 𝜃𝑚 > , 𝑤3 < 𝑤*1 < 𝑤*4 < 𝑤*2 .
In this model, manufacturer’s misreport cost and retailer’s fairness 3𝜆𝑏𝑐
concern are considered simultaneously, denoted as MF model. Under (2)When 𝜆 > 1,
this asymmetric situation, the manufacturer misreports its own cost 1
information, but other information, including retailer’s fairness concern (𝑖). 𝑊 ℎ𝑒𝑛 0 < 𝜃𝑚 < , 𝑤* < 𝑤*3 < 𝑤*1 < 𝑤*2 .
3𝜆 4
factor, is public. The problems of players are given by 1 (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 *
(𝑖𝑖). 𝑊 ℎ𝑒𝑛 < 𝜃𝑚 < , 𝑤3 < 𝑤*4 < 𝑤*1 < 𝑤*2 .
3𝜆 3𝜆𝑏𝑐
𝜋𝑚4 (𝑤) = (𝑤 − 𝑐𝑚 )(𝑎 − 𝑏𝑝 + 𝜂𝜙), (42) (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 *
(𝑖𝑖𝑖). 𝑊 ℎ𝑒𝑛 < 𝜃𝑚 < , 𝑤3 < 𝑤*1 < 𝑤*4 < 𝑤*2 .
3𝜆𝑏𝑐 (𝜆 − 1)𝑏𝑐
(𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 *
1
𝑢4𝑟 = (1+𝜆)[(𝑎+𝜂𝜙)𝑝−𝑏𝑝2 −𝑤(𝑎+𝜂𝜙)+𝑏𝑤𝑝− 𝑀𝜙2 ]−𝜆(𝑤−𝑐𝑚 )(𝑎−𝑏𝑝+𝜂𝜙). (𝑖𝑣). 𝑊 ℎ𝑒𝑛 𝜃𝑚 > , 𝑤3 < 𝑤*1 < 𝑤*2 < 𝑤*4 .
2 (𝜆 − 1)𝑏𝑐
(43) We first analyze the manufacturer’s wholesale price decision. One
may except that the optimal wholesale price under the manufacturer’s
Based on the calculations similar to those in the subSections 3.3 and misreport behavior is always higher than that under the manufacturer’s
3.4, optimal solutions of both players in MF model can be given by true report behavior because of profit competition. Inequation 𝑤∗1 <
𝑎(𝜆 + 1) + 3𝜆𝑏𝑐(𝜃𝑚 + 1) 𝑤∗2 in Proposition 1 does explain that the influence of manufacturer’s
𝑤*4 = , (44) misreport on decision making. It means that when the retailer is
2𝑏(2𝜆 + 1)
fair-neutral, the manufacturer will set a high price with misreporting
(𝜂 2 − 𝑏𝑀)(𝑎 + 𝑏𝑐𝑚 ) − 2𝑎𝑏𝑀 behavior. But when the retailer concerns fairness, the results change
𝑝*4 = , (45) a lot. Firstly, when 0 < 𝜃𝑚 < 3𝜆 1
, the manufacturer will set a lowest
2𝑏(𝜂 2 − 2𝑏𝑀)
wholesale price under MF model than those under NN, MN and NF
𝜂(𝑎 − 𝑏𝑐𝑚 ) models. It is telling that, in combination with the retailer’s fairness
𝜙*4 = . (46)
2(2𝑏𝑀 − 𝜂 2 ) concern, a slight degree of misreporting behavior makes the manufac-
1
turer decide on the lowest wholesale price. Secondly, when 3𝜆 < 𝜃𝑚 <
Substitute optimal solutions into Eqs. (25) and (43). Then actual (𝑎−𝑏𝑐)𝜆+𝑏𝑐
profits of players and utility of retailer can be presented by Eqs. (47)– 3𝜆𝑏𝑐
, the optimal wholesale prices under four models satisfy the
(49). The optimal solutions and corresponding actual profits of players inequation 𝑤*3 < 𝑤*4 < 𝑤*1 < 𝑤*2 . It shows that when the misreporting
under four models are presented in Table 2. factor increases to a certain extent, the manufacturer’s wholesale price
decision under retailer’s fairness concern is higher than that under
4 𝑀[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)][𝑎 − 2𝑏𝑐 + 𝑎𝜆 − 𝑏𝑐𝜆 + 3𝜃𝑚 𝑏𝑐𝜆] retailer’s fair-neutral behavior, but lower than that under both players’
𝜋𝑚−𝑎𝑐𝑡𝑢𝑎𝑙 = , (47)
4(2𝜆 + 1)(2𝑏𝑀 − 𝜂 2 ) rational decisions. Thirdly, when 𝜃𝑚 > (𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆𝑏𝑐
, it can be divided into
three cases. When 0 < 𝜆 ≤ 1, the wholesale prices satisfy the inequation
𝑀[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)][𝑎(4𝜆 + 1) + (1 + 𝜃𝑚 )(1 − 4𝜆)𝑏𝑐]
𝜋𝑟4 = , (48) 𝑤*3 < 𝑤*1 < 𝑤*4 < 𝑤*2 . When 𝜆 > 1, (𝑎−𝑏𝑐)𝜆+𝑏𝑐 < 𝜃𝑚 < (𝑎−𝑏𝑐)𝜆+𝑏𝑐 , the
8(2𝜆 + 1)(2𝑀𝑏 − 𝜂 2 ) 3𝜆𝑏𝑐<𝜃 𝑚 (𝜆−1)𝑏𝑐
inequation 𝑤*3 < 𝑤*1 < 𝑤*4 < 𝑤*2 holds. In both cases, at this point the
𝑀(𝜆 + 1)[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)]2 retailer’s fairness concern is low or the manufacturer’s cost misreport
𝑢4𝑟 = . (49)
8(2𝑀𝑏 − 𝜂 2 ) is low. When 𝜆 > 1, 𝜃𝑚 > (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
, the inequation 𝑤*3 < 𝑤*1 < 𝑤*2 < 𝑤*4
holds. In this case, when both manufacturer and retailer’s irrational

6
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

behavior factors are larger, manufacturer’s wholesale price decision is

the highest under MF model compared to the others. Note that the size
relationship between the three thresholds of 𝜃𝑚 has been proved in the
Appendix.

Proposition 2. 𝑝∗1 = 𝑝∗3 < 𝑝∗2 = 𝑝∗4 .

Proposition 2 presents the optimal retailing prices under NN, NF,

MN, MF model satisfy 𝑝∗1 = 𝑝∗3 < 𝑝∗2 = 𝑝∗4 . When the manufac-
turer misreports cost, the retailing prices are always bigger than those
under the models that the manufacturer reports cost truly, whatever
the retailer concerns fairness or not. On the other hand, when the
manufacturer reports its production cost truly, the fairness concerned
retailer will make retailing price decision consistent with its fair-neutral
decision. The similar thing happens. When the manufacturer misreports
its cost, the optimal retailing prices are equal when the retailer concerns
fairness or not. In another word, the retailer’s fairness concern has no
impact on its’ price decision.
Fig. 2. The comparison of 𝑝 and 𝜙 under four models.
Proposition 3. 𝜙∗1 = 𝜙∗3 > 𝜙∗2 = 𝜙∗4 .

Proposition 3 is similar to Proposition 2 and presents that service

levels under NN, NF, MN, MF model satisfy 𝜙∗1 = 𝜙∗3 > 𝜙∗2 = 𝜙∗4 .
The difference is when the manufacturer misreports cost, service levels
are always smaller than those under the models that the manufacturer
reports cost truly. In combination with Propositions 2 and 3, an inter-
esting finding is that the retailer’s fairness concern has no impact on
its’ optimal decisions. Then we can get some propositions by comparing
profits under four models.
Proposition 4.
(𝑖). 𝜋𝑚3 < 𝜋𝑚4 < 𝜋𝑚2 < 𝜋𝑚1 .
1 4
(𝑖𝑖). 𝑊 ℎ𝑒𝑛 𝜃𝑚 ≤ , 𝜋 > 𝜋𝑟3 > 𝜋𝑟1 > 𝜋𝑟2 .
4𝜆 𝑟
1 3
𝑊 ℎ𝑒𝑛 𝜃𝑚 > , 𝜋 > 𝜋𝑟4 > 𝜋𝑟1 > 𝜋𝑟2 .
4𝜆 𝑟
(𝑖𝑖𝑖). 𝑢3𝑟 > 𝑢4𝑟 .
From Proposition 4, profit of the manufacturer under NN model
is always the biggest among four models, profit under MN model is
the second, profit under MF model is the third while profit under NF
model is always the smallest. Obviously, this phenomenon is due to
the impacts of misreport behavior and fairness concern upon the chain.
When the retailer is fairness-neutral, the manufacturer’s profit will
decrease if it misreports its own production cost. When the retailer con-
cerns fairness, the manufacturer’s misreport behavior will help increase
its own profit. In addition, when the manufacturer reports the cost
truly, retailer’s fairness concern behavior will lead to the decreasing
of the manufacturer’s profit. We give specific analysis in the numerical
analysis section.
As for the profit comparison of retailer under four models, due to
manufacturer’s misreport behavior and retailer’s fairness concern, when
1
𝜃𝑚 ≤ 4𝜆 , the inequation 𝜋𝑟4 > 𝜋𝑟3 > 𝜋𝑟1 > 𝜋𝑟2 is always true; when
1
𝜃𝑚 > 4𝜆 , the inequation 𝜋𝑟3 > 𝜋𝑟4 > 𝜋𝑟1 > 𝜋𝑟2 is always true. When
1
the manufacturer slightly misreported the cost, if 𝜃𝑚 ≤ 4𝜆 , the profit
of the fair-neutral retailer is lower than that when the manufacturer
truly reported the cost. When the manufacturer highly misreported the
1
cost, if 𝜃𝑚 > 4𝜆 , the opposite is true. In other word, to some extent,
fairness concern behavior can help the retailer resist the loss of prof-
its caused by manufacturer’s misreporting. From another perspective,
while the retailer is fairness neutral, if the manufacturer misreport cost,
profits will fall for both of them. While retailer concerns fairness, the
manufacturer’s minor misreport behavior will lead to increase retailer’s
actual profit.
As for utility comparison between MN model and MF model, the
inequation 𝑢3𝑟 > 𝑢4𝑟 is always true. It is worth noting that if the retailer
is concerned with fairness, when the manufacturer misreports, value
of the retailer’s utility function grows higher when the manufacturer
truly reports the cost, but in fact the retailer gains more profit than
when the manufacturer truly reports the cost. On the whole, retailer’
fairness concern behavior will make itself gain more profit.
In brief, something can be concluded from Propositions 1–4. For
the retailer, whether it concerns fairness or not has no impact on its
own optimal decision, i.e. its optimal retailing price and service level
remain unchanged. But the manufacturer’s misreport behavior greatly
affects retailer’s decision, resulting in the decrease of retailing price
while service level and profit/utility get increased. Nevertheless, the
retailer’s fairness concern behavior and the manufacturer’s misreport
behavior have an opposite effect on the manufacturer’s profit.
5. Numerical analysis
In this section, we investigate the impacts of misreport behavior
and fairness concern upon player’s decisions by comparative analy-
ses and numerical studies. To conduct this numerical analysis, with
reference to the setting of the remaining parameters in the relevant
literature (Mondal & Giri, 2020; Qian et al., 2020; Qin & Shao, 2019;
Wang et al., 2019), we assume the values of the parameters are 𝑎 =
500, 𝑏 = 0.5, 𝜂 = 0.5, 𝑐 = 4, 𝑀 = 1000, 𝜆 = 2 , where the values
2
are realistic and satisfy Assumption 3 and the inequation 𝑀 > 𝜂2𝑏 .
Noting that in Proposition 1, it can be shown that the results of (1)(i–
ii) are the same as that of (2)(i–ii), obviously the situation 𝜆 > 1 is
more complicated than the situation 0 < 𝜆 ≤ 1. Hence the situation
𝜆 > 1 is chosen for analysis. We first demonstrate the impact of two
behavior factors on retailing price 𝑝 and service level 𝜙 of the retailer
in Fig. 2. We observe an interesting result that the misreport factor
exhibits an increasing effect on the retailing price but a decreasing
effect on the service level under models MN and MF. As for models NN
and NF, retailing price and service level keep unchanged. This result is
consistent with Propositions 2 and 3.
Before giving the comparison of the wholesale price, we first calcu-
late four thresholds of 𝜃𝑚 in Propositions 1 and 4, as shown in Table 3.
Then Fig. 3 presents the comparison of four wholesale prices under
different ranges of misreport factor. In Fig. 3, an interesting result is
that the size comparison relations in four ranges are different, which
accords with Proposition 1. Although when 𝜃𝑚 ≤ 0.1667, the differences
between 𝑤1 and 𝑤2 , and between 𝑤3 and 𝑤4 , are subtle. As for the
manufacturer, it should be aware of the impact of different degrees of
misreporting it takes on its optimal decision.
Then, we discuss the impact of behavior factors on the players’
profits and utilities. Fig. 4 presents that 𝜋𝑟1 is always bigger than

7
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

Fig. 3. The comparison of the manufacturer’s optimal wholesale price under four models.

Fig. 4. The comparison of the retailer’s profit/utility under four models.

Table 3 negatively correlated with misreporting factor. As for retailer’s utilities,

The values of 𝜃𝑚 when 𝑎 = 500, 𝑏 = 0.5, 𝑐 = 4, 𝜆 = 2.
𝑢3𝑟 and 𝑢4𝑟 , they are always content with 𝑢4𝑟 ≤ 𝑢3𝑟 under the influence of
1 1 (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐 (𝑎 − 𝑏𝑐)𝜆 + 𝑏𝑐
4𝜆 3𝜆 3𝜆𝑏𝑐 (𝜆 − 1)𝑏𝑐 the manufacturer’s misreport behavior, and retailer’s utility in model
𝜃𝑚 0.125 0.1667 83.1667 499 MF decreases as 𝜃𝑚 increases. Fig. 5 shows that 𝜋𝑚3 < 𝜋𝑚4 < 𝜋𝑚2 < 𝜋𝑚1 no
matter what the value of 𝜃𝑚 is. The results are consistent with Proposi-
tion 4. It should be noted that in reality, manufacturers generally do not
overstate the cost exaggeratively, and the range of values in the figure
𝜋𝑟2 , which means the manufacturer’s misreport behavior affects the is just to make the result more intuitive. Comparing the possible six
retailer’s profit to some extent, and retailer’s profit in model MN is pairs of the models, which consist of model NN and NF, model NN and

8
S. Qu et al.
Fig. 5. The comparison of the manufacturer’s profit under four models.
MN, model NN and MF, model NF and MN, model NF and MF, model
MN and MF, we can find that whether the manufacturer reports its own
true cost or not, the retailer’s concerns about fairness can lead to lower
profits for manufacturers whatever 𝜃𝑚 is. When the retailer concerns
fairness, the manufacturer’s misreport behavior will help increase its
own profit. When the retailer is fairness-neutral, the manufacturer’s
profit will decrease if it misreports its own production cost. In short,
misreport behavior of the manufacturer and fairness concern of retailer
will both reduce manufacturer’s profit.
6. Extension
In this section, we derive one-to-one supply chain model to one-
to-many supply chain model, which will be more in line with real
complex and competition life. In short, a supply chain system concluded
one manufacturer and multi-retailers is structured in the following
article. There are price and service differentiation among these com-
peting retailers. The structure of general supply chain is shown as
Fig. 6. It is worth noting that in addition to the six assumptions set
out in Section 3.1, this section proposes the following two necessary
assumptions.
Assumption 6. Assume that the basic demand, price–demand sensitiv-
ity coefficients and service level–demand sensitivity coefficients in all
retail channels are the same.
Assumption 7. Assume that each retail channel is independent, that is,
the cross influence between retail channels is not considered.
In this situation, misreport behavior of the manufacturer and fair-
ness concerns of retailers are considered. The public disclosed profit
functions of the manufacturer and retailer, the utility function of re-
tailer in each channel are presented in Eqs. (50)–(52). The actual profit
of the manufacturer is given by Eq. (53). For the sake of simplicity,
basic demands, price–demand sensitivity coefficients and service level–
demand sensitivity coefficients in all channels are assumed to be the
same.
∑
𝐼
𝜋𝑚 = (𝑤𝑖 − 𝑐𝑚 )(𝑎 − 𝑏𝑝𝑖 + 𝜂𝜙𝑖 ) , (50)
𝑖=1
1 Consequently, the manufacturer and the retailer have different price
𝜋𝑟𝑖 = (𝑝𝑖 − 𝑤𝑖 )(𝑎 − 𝑏𝑝𝑖 + 𝜂𝜙𝑖 ) − 𝑀𝜙2 , (51)
2 𝑖 𝑖
1
𝑢𝑟𝑖 = (1+𝜆𝑖 )[(𝑎−𝑏𝑝𝑖 +𝜂𝜙𝑖 )(𝑝𝑖 −𝑤𝑖 )− 𝑀𝑖 𝜙𝑖 2 ]−𝜆𝑖 (𝑤𝑖 −𝑐𝑚 )(𝑎−𝑏𝑝𝑖 +𝜂𝜙𝑖 ), (52)
2
9
Computers & Industrial Engineering 174 (2022) 108759
Fig. 6. The structure of general supply chain.
∑
𝐼
𝜋𝑚−𝑎𝑐𝑡𝑢𝑎𝑙 = (𝑤𝑖 − 𝑐)(𝑎 − 𝑏𝑝𝑖 + 𝜂𝜙𝑖 ). (53)
𝑖=1
The multi-retailers’ total profit and utility are shown in Eqs. (54)–
(55).
∑
𝐼 ∑
𝐼
1
𝜋𝑟 = 𝜋𝑟𝑖 = [(𝑝𝑖 − 𝑤)(𝑎𝑖 − 𝑏𝑖 𝑝𝑖 + 𝜂𝑖 𝜙𝑖 ) − 𝑀 𝜙 2 ], (54)
𝑖=1 𝑖=1
2 𝑖 𝑖
∑
𝐼
1
𝑢𝑟 = {(1+𝜆𝑖 )[(𝑎−𝑏𝑝𝑖 +𝜂𝜙𝑖 )(𝑝𝑖 −𝑤𝑖 )− 𝑀𝑖 𝜙𝑖 2 ]−𝜆𝑖 (𝑤𝑖 −𝑐𝑚 )(𝑎−𝑏𝑝𝑖 +𝜂𝜙𝑖 )}.
𝑖=1
2
(55)
It is worth noting that when 𝜃𝑚 = 0, or 𝜆𝑖 = 0, or both 𝜃𝑚 and
𝜆𝑖 are 0, the corresponding profit expressions or utility expressions
corresponds to MN model, NF model and NN model in Section 3
respectively. According to Assumption 7, the optimal retailing price
and service level in each channel can be solved using the solution
process similar to the previous sections. So the calculation process
is omitted. The optimal strategies in general situation are shown in
Table 4. From Table 4, we can see the optimal solutions are similar
to these in Table 2. Likewise, Propositions 1–4 are true in general
situation, i.e. in one-to-many supply chain.
7. Conclusion and discussion
In retrospect, retailing industry has developed significantly because
retailers generally restock from the same large plant since they actively
searching for supplier with sufficient supply and excellent quality.
In reality, the player has the motivations of misreporting cost and
concerning fairness. As the leader, the manufacturer has great incentive
to misreport its own production cost in order to obtain more profits,
which causes the case with asymmetric information. As the follower,
the retailer may concern the fairness. The issue of misreport behavior
and fairness concern has become an important research topic.
We propose four decision models for supply chain: a decision-
making model without behaviors (NN), a decision-making model with
manufacturer misreport behavior (MN), a decision-making model with
retailer fairness concerns (NF), and a decision-making model with both
behaviors (MF). This paper deeply discusses the effects of symmetric
fairness concern and asymmetric misreport behavior information on the
supply chain. In addition, in the extension part, we extend to the one-to-
many supply chain model and further prove the validity and correctness
of the obtained results in the one-to-one supply chain model.
and service level decisions in different models, which bring diverse
players’ profits. The manufacturer, as the chain leader, is verified to
be able to get more profit by reporting true production cost when
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

Table 4
Optimal solutions and profits under four models.
Model NN Model MN Model NF Model MF
( 2 )
𝜂 − 𝑏𝑀𝑖 (𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀𝑖 (𝜂 2 − 𝑏𝑀𝑖 )[𝑎 + 𝑏𝑐(𝜃𝑚 + 1)] − 2𝑎𝑏𝑀𝑖 (𝜂 2 − 𝑏𝑀𝑖 )(𝑎 + 𝑏𝑐) − 2𝑎𝑏𝑀𝑖 (𝜂 2 − 𝑏𝑀𝑖 )[𝑎 + 𝑏𝑐(𝜃𝑚 + 1)] − 2𝑎𝑏𝑀𝑖
𝑝∗𝑖 ( ) ( )
2𝑏 𝜂 2 − 2𝑏𝑀𝑖 2𝑏 𝜂 2 − 2𝑏𝑀𝑖 2𝑏(𝜂 2 − 2𝑏𝑀𝑖 ) 2𝑏(𝜂 2 − 2𝑏𝑀𝑖 )
(𝑏𝑐 − 𝑎) 𝜂 [𝑏𝑐(1 + 𝜃𝑚 ) − 𝑎]𝜂 (𝑏𝑐 − 𝑎) 𝜂 𝜂[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)]
𝜙𝑖 ∗ ( ) ( )
2 𝜂 2 − 2𝑏𝑀𝑖 2(𝜂 2 − 2𝑏𝑀𝑖 ) 2 𝜂 2 − 2𝑏𝑀𝑖 2(2𝑏𝑀𝑖 − 𝜂 2 )
𝑎 + 𝑏𝑐 𝑎 + 𝑏𝑐(1 + 𝜃𝑚 ) 𝑎(𝜆𝑖 + 1) + 𝑏𝑐(3𝜆𝑖 + 1) 𝑎(𝜆𝑖 + 1) + 3𝜆𝑖 𝑏𝑐(𝜃𝑚 + 1)
𝑤∗𝑖
2𝑏 2𝑏 2𝑏(2𝜆𝑖 + 1) 2𝑏(2𝜆𝑖 + 1)
( ) ( )
∑𝐼
𝑀𝑖 (𝑏𝑐 − 𝑎)2 ∑𝐼
𝑀𝑖 [𝑎 + 𝑏𝑐 𝜃𝑚 − 1 ][𝑎 − 𝑏𝑐 𝜃𝑚 +1 ] ∑
𝐼
𝑀𝑖 (𝑎 − 𝑏𝑐)2 (𝜆 + 1) ∑𝐼
𝑀𝑖 [𝑎 − 𝑏𝑐(𝜃𝑚 + 1)][𝑎 − 2𝑏𝑐 + 𝑎𝜆𝑖 − 𝑏𝑐𝜆𝑖 + 3𝜃𝑚 𝑏𝑐𝜆𝑖 ]
𝜋𝑚 ( ) ( )
𝑖=1 4 2𝑏𝑀𝑖 − 𝜂 2 𝑖=1 4 2𝑏𝑀𝑖 − 𝜃 2 𝑖=1
4(2𝜆𝑖 + 1)(2𝑀𝑖 𝑏 − 𝜂 2 ) 𝑖=1
4(2𝜆𝑖 + 1)(2𝑏𝑀𝑖 − 𝜂 2 )
( )2 ( )
∑𝐼
𝑀𝑖 (𝑎 − 𝑏𝑐)2 ∑𝐼
𝑀𝑖 [𝑎 − 𝑏𝑐 1 + 𝜃𝑚 ] ∑𝐼
𝑀𝑖 (𝑎 − 𝑏𝑐)2 (4𝜆𝑖 + 1) ∑𝐼
𝑀𝑖 [𝑎 − 𝑏𝑐 1 + 𝜃𝑚 ][𝑎(4𝜆𝑖 + 1) + (1 + 𝜃𝑚 )(1 − 4𝜆𝑖 )𝑏𝑐]
𝜋𝑟 ( ) ( ) ( ) ( )
𝑖=1 8 2𝑏𝑀𝑖 − 𝜂 2 𝑖=1 8 2𝑏𝑀𝑖 − 𝜂 2 𝑖=1 8 2𝜆𝑖 + 1)(2𝑏𝑀𝑖 − 𝜂 2 𝑖=1 8 2𝜆𝑖 + 1)(2𝑏𝑀𝑖 − 𝜂 2
∑𝐼
𝑀𝑖 (𝑎 − 𝑏𝑐)2 (𝜆𝑖 + 1) 𝑀𝑖 (𝜆𝑖 + 1)[𝑎 − 𝑏𝑐(𝜃𝑚 + 1)]2
𝑢𝑟 / /
𝑖=1
8(2𝑏𝑀𝑖 − 𝜂 2 ) 8(2𝑏𝑀𝑖 − 𝜂 2 )

the retailer is fairness-neutral, while the manufacturer will get more Appendix
profit with misreporting cost when the retailer concerns fairness. From
another perspective, whether the manufacturer reports true cost or not,
if the retailer concerns fairness, it will lead to the profit reduction
A.1. Proof of Proposition 1
of the manufacturer. In other words, the retailer’s fairness concern
behavior dampens manufacturer profit. For the real enterprise, if it is
observed that the downstream enterprise concerns fairness, such as the Proof. According to 𝜃𝑚 > 0 in MN model, 𝑤∗1 < 𝑤∗2 can be proved.
case of the downstream enterprise canceling cooperation due to unfair 𝑤*1 (𝑎+𝑏𝑐)(2𝜆+1) (𝑎+𝑏𝑐)(𝜆+1)+𝜆𝑏𝑐+𝜆𝑎
From = 𝑎(𝜆+1)+𝑏𝑐(3𝜆+1) = > 1, 𝑤*1 > 𝑤*3 can be
profit distribution, the upstream enterprise can achieve the purpose of 𝑤*3 (𝑎+𝑏𝑐)(𝜆+1)+𝜆𝑏𝑐+𝜆𝑏𝑐
improving profits by appropriately misreporting cost. derived.
𝑐𝜃𝑚
(𝑏𝑐−𝑎)𝜆
Furthermore, an interesting finding is that the retailer’s fairness con- Let 𝑤*3 − 𝑤*2 = 2𝑏(2𝜆+1)2
−. According to the assumption𝑎 ≫ 𝑏, 𝑐,
cern behavior has no influences on the retailer’s price and service level 𝑎 > 𝑏𝑐 can be derived. Then 𝑤*3 < 𝑤*2 can be derived.
3𝜆𝑏𝑐𝜃𝑚 +𝜆𝑏𝑐−𝑎𝜆−𝑏𝑐
decisions. The manufacturer will adjust its wholesale price decision Let 𝑤*4 − 𝑤*1 = 2𝑏(2𝜆+1)
< 0, 𝜃𝑚 < (𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆𝑏𝑐
can be derived.
to help get more profit when it knows the retailer concerns fairness. * * 3𝜆𝑏𝑐𝜃𝑚 +𝜆𝑏𝑐−𝑎𝜆−𝑏𝑐 (𝑎−𝑏𝑐)𝜆+𝑏𝑐
Let 𝑤4 − 𝑤1 = > 0, 𝜃𝑚 > can be derived. It
Our results suggest that, to some extent, fairness concern behavior can 2𝑏(2𝜆+1) 3𝜆𝑏𝑐
3𝜆𝑏𝑐𝜃𝑚 +𝜆𝑏𝑐−𝑎𝜆−𝑏𝑐
help the retailer resist the loss of profits caused by manufacturer’s can be further deduced that, when 2𝑏(2𝜆+1)
< 0, 𝑤*4 < 𝑤*1 . When
3𝜆𝑏𝑐𝜃𝑚 +𝜆𝑏𝑐−𝑎𝜆−𝑏𝑐 * *
minor misreporting. For real retailer, if it is observed that the upstream > 0, 𝑤4 > 𝑤1 .
2𝑏(2𝜆+1)
enterprise is likely to misreport cost, as reported in the news in the For 𝑤*4 − 𝑤*2 =
(𝜆−1)𝑏𝑐(𝜃𝑚 +1)−𝑎𝜆
, when 0 < 𝜆 ≤ 1, 𝑤*4 < 𝑤*2 can be
past, the retailer can pay attention to the allocation fairness to face 2𝑏(2𝜆+1)
(𝜆−1)𝑏𝑐(𝜃𝑚 +1)−𝑎𝜆
misreporting behavior. derived. When 𝜆 > 1, let 𝑤*4 − 𝑤*2 = 2𝑏(2𝜆+1)
< 0, 𝜃𝑚 < (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
* * (𝜆−1)𝑏𝑐(𝜃𝑚 +1)−𝑎𝜆 (𝑎−𝑏𝑐)𝜆+𝑏𝑐
This research can be extended in several directions. First, a more re- can be derived. Let 𝑤4 − 𝑤2 = 2𝑏(2𝜆+1)
> 0, 𝜃𝑚 > (𝜆−1)𝑏𝑐
can be
alistic supply chain structure with multi manufacturers, multi retailers derived. It can be further deduced that, when 𝜆 > 1, if 𝜃𝑚 < (𝑎−𝑏𝑐)𝜆+𝑏𝑐 (𝜆−1)𝑏𝑐
,
or multi channels can be studied. Second, it is significative to consider
𝑤*4 < 𝑤*2 . If 𝜃𝑚 > (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
, 𝑤 * > 𝑤* .
4 2
the uncertain demand. These issues are great for further study.
𝑤* 𝑎(𝜆+1)+𝑏𝑐(3𝜆+1) 1
Let *3 = 𝑎(𝜆+1)+3𝜆𝑏𝑐(𝜃 +1)
> 1, 𝜃𝑚 < 3𝜆 can be derived.
𝑤 4 𝑚
CRediT authorship contribution statement 𝑤*3 𝑎(𝜆+1)+𝑏𝑐(3𝜆+1) 1
Let = < 1, 𝜃𝑚 > can be derived. It can be
𝑤*4 𝑎(𝜆+1)+3𝜆𝑏𝑐(𝜃𝑚 +1) 3𝜆
Shaojian Qu: Supervision, Validation, Reviewing, Funding acqui- further deduced that, when 𝜃𝑚 < 1 * * 1
, 𝑤3 > 𝑤4 . When 𝜃𝑚 < 3𝜆 , 𝑤*3 < 𝑤*4 .
sition. Lingli Shu: Conceptualization, Formal analysis, Methodology, 3𝜆
Next, further compare the sizes relationship of the three thresholds
Writing – original draft. Jingyuan Yao: Software, Visualization, Re-
of A. Intuitively, 3𝜆 1
< (𝑎−𝑏𝑐)𝜆+𝑏𝑐 is always true. When 0 < 𝜆 ≤ 1,
viewing. (𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆𝑏𝑐
3𝜆𝑏𝑐
− (𝜆−1)𝑏𝑐 = [(𝑎−𝑏𝑐)𝜆+𝑏𝑐](−1−2𝜆)
(𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆(𝜆−1)𝑏𝑐
> 0. So, (𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆𝑏𝑐
> (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
.
Declaration of competing interest As for (𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆𝑏𝑐
1
/ 3𝜆 𝑎
= ( 𝑏𝑐 − 1)𝜆 + 1, according to the assumption𝑎 ≫
(𝑎−𝑏𝑐)𝜆+𝑏𝑐
𝑎
𝑏, 𝑐, ( 𝑏𝑐 − 1)𝜆 + 1 > 1, 3𝜆𝑏𝑐
1
> 3𝜆 can be derived. As for (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
−
The authors declare that they have no known competing finan- 2
1
= 3𝜆 (𝑎−𝑏𝑐)+2𝜆𝑏𝑐+𝑏𝑐 < 0, so (𝑎−𝑏𝑐)𝜆+𝑏𝑐 1
< 3𝜆 . Hence, when 0 < 𝜆 ≤ 1,
cial interests or personal relationships that could have appeared to 3𝜆
(𝑎−𝑏𝑐)𝜆+𝑏𝑐
3𝜆(𝜆−1)𝑏𝑐
1 (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
influence the work reported in this paper. (𝜆−1)𝑏𝑐
< 3𝜆
< 3𝜆𝑏𝑐
.
When 𝜆 > 1, (𝑎−𝑏𝑐)𝜆+𝑏𝑐 3𝜆𝑏𝑐
− (𝑎−𝑏𝑐)𝜆+𝑏𝑐
(𝜆−1)𝑏𝑐
= [(𝑎−𝑏𝑐)𝜆+𝑏𝑐](−1−2𝜆)
3𝜆(𝜆−1)𝑏𝑐
< 0, so
Data availability (𝑎−𝑏𝑐)𝜆+𝑏𝑐
< (𝑎−𝑏𝑐)𝜆+𝑏𝑐
. Additionally, (𝑎−𝑏𝑐)𝜆+𝑏𝑐
> 1
. Hence, when 𝜆 > 1,
3𝜆𝑏𝑐 (𝜆−1)𝑏𝑐 3𝜆𝑏𝑐 3𝜆
1 (𝑎−𝑏𝑐)𝜆+𝑏𝑐 (𝑎−𝑏𝑐)𝜆+𝑏𝑐
< < . □
No data was used for the research described in the article. 3𝜆 3𝜆𝑏𝑐 (𝜆−1)𝑏𝑐

Acknowledgments
A.2. Proof of Proposition 2
The work was supported by the National Natural Science Founda-
tion of China (72171123, 72171149), Shanghai Philosophy and Social Proof. By comparing the optimal retailing prices, we know that 𝑝∗1 =
Science Foundation of China (2020BGL010), National Major Social 𝑝∗3 , 𝑝∗2 = 𝑝∗4 .
Science Foundation of China (21ZDA105). The authors are grateful to 𝑝*1 (𝑏𝑀−𝜂 2 )(𝑎+𝑏𝑐)+2𝑎𝑏𝑀
the editor and anonymous reviewers for their suggestions in improving From = < 1, 𝑝∗1 < 𝑝∗2 can be derived. Then
𝑝*2 (𝑏𝑀−𝜂 2 )[𝑎+𝑏𝑐(𝜃𝑚 +1)]+2𝑎𝑏𝑀
the quality of the manuscript. Proposition 2 can be verified. □

10
S. Qu et al. Computers & Industrial Engineering 174 (2022) 108759

A.3. Proof of Proposition 3 Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness competition on profit
seeking entitlements in the market. American Economics Review, 76(4), 728–741.
Proof. By comparing the optimal retailing prices, we can know 𝜙∗1 = Li, X., Cui, X. Q., Li, Y. J., Xu, D. Q., & Xu, F. C. (2019). Optimisation of reverse
𝜙*1
supply chain with used-product collection effort under collector’s fairness concerns.
(𝑎−𝑏𝑐)𝜂 𝑎−𝑏𝑐
𝜙∗3 , 𝜙∗2 = 𝜙∗4 . From = = > 1, 𝜙∗1 > 𝜙∗2 can be International Journal of Production Research, http://dx.doi.org/10.1080/00207543.
𝜙*2 [𝑎−𝑏𝑐(1+𝜃𝑚 )]𝜂 𝑎−𝑏𝑐(1+𝜃𝑚 )
2019.1702229.
derived. Then Proposition 3 can be verified. □
Li, R. H., Liu, Y. P., Teng, J. T., & Tsao, Y. C. (2019). Optimal pricing, lot-sizing
and backordering decisions when a seller demands an advance-cash-credit payment
A.4. Proof of Proposition 4 scheme. European Journal of Operational Research, 278(1), 283–295.
Li, X. Y., & Zhu, Q. H. (2019). Contract design for enhancing green food material
Proof. By simple calculations, 𝜋𝑟1 > 𝜋𝑟2 and 𝑢3𝑟 > 𝑢4𝑟 can be derived. production effort with asymmetric supply cost information. Sustainability-Basel,
𝜋𝑟3 12(5), 2119. http://dx.doi.org/10.3390/su12052119.
From = 4𝜆+1 > 1, 𝜋𝑟3 > 𝜋𝑟1 can be derived. From 𝜋𝑟4 −
𝜋𝑟1 2𝜆+1 ( ) Liu, W. H., & Xie, D. (2013). Quality decision of the logistics service supply chain
𝑀(1−𝜏){2𝑎𝑏𝑐(1−4𝜆𝜃𝑚 )−𝑏2 𝑐 2 [ 𝜃𝑚 +2𝜃𝑚2 (1−4𝜆)−8𝜆]}
with service quality guarantee. International Journal of Production Research, 51(5),
𝜋𝑟3 = 8(2𝜆+1)(2𝑏𝑀−𝜃 ) 2 , when (1 − 4𝜆𝜃𝑚 ) ≥ 0,
1618–1634.
𝑏𝑐[𝜃𝑚 −4𝜆𝜃𝑚 +2𝜃𝑚2 −8𝜆𝜃 2 −8𝜆]
1
i.e. 𝜃𝑚 ≤ 4𝜆 , if 𝑎 ≥ 2(1−4𝜆𝜃𝑚 )
𝑚
, 𝜋𝑟4 > 𝜋𝑟3 can be derived. Ma, S. S., Lin, J., & Zhao, X. (2016). Online store discount strategy in the presence
2 −8𝜆𝜃 2 −8𝜆] of consumer loss aversion. International Journal of Production Economics, 171, 1–7.
1 𝑏𝑐[𝜃𝑚 −4𝜆𝜃𝑚 +2𝜃𝑚 𝑚
When (1 − 4𝜆𝜃𝑚 ) < 0, i.e. 𝜃𝑚 > 4𝜆 , if 𝑎 > 2(1−4𝜆𝜃𝑚 )
, http://dx.doi.org/10.1016/j.ijpe.2015.10.016.
4 3
𝜋𝑟 < 𝜋𝑟 can be derived. Causing of Assumption 3, the inequality Mondal, C., & Giri, B. C. (2020). Pricing and used product collection strategies in
2 −8𝜆𝜃 2 −8𝜆]
𝑏𝑐[𝜃𝑚 −4𝜆𝜃𝑚 +2𝜃𝑚 a two-period closed-loop supply chain under greening level and effort dependent
1
𝑎> 2(1−4𝜆𝜃𝑚 )
𝑚
must be true. Hence, when 𝜃𝑚 > 4𝜆 , 𝜋𝑟4 < 𝜋𝑟3 demand. Journal of Cleaner Production, 265, Article 121335. http://dx.doi.org/10.
1 4 3 1016/j.jclepro.2020.121335.
must be true, when 𝜃𝑚 < 4𝜆 , 𝜋𝑟 > 𝜋𝑟 must be true.
1 Nie, T. F., & Du, S. F. (2017). Dual-fairness supply chain with quantity discount
𝜋𝑚
As for the manufacturer’s actual profit comparison, 2 = contracts. European Journal of Operational Research, 258, 491–500. http://dx.doi.
𝜋𝑚
𝑎2 −2𝑎𝑏𝑐+𝑏2 𝑐 2 org/10.1016/j.ejor.2016.08.051.
> 1 because of −
2 −1) (𝜃𝑚2
− 1) < 1. Then > 𝜋𝑚1
can 𝜋𝑚2 Pankaj, D., Anurag, M., Sachin, K., & Ibrahim, K. (2020). A multiobjective optimization
𝑎2 −2𝑎𝑏𝑐−𝑏2 𝑐 2 (𝜃𝑚
be derived. 2 (2𝜆+1)−𝜆(𝑎−𝑏𝑐)2 ] √ model for sustainable reverse logistics in Indian e-commerce market. Journal of
𝑀[𝑏2 𝑐 2 𝜃𝑚
From 𝜋𝑚3 − 𝜋𝑚2 = 4(2𝜆+1)(2𝑀𝑏−𝜂 2 )
, if 𝑎 > 𝑏𝑐(1 + 𝜃𝑚 2𝜆+1 ) or Cleaner Production, 249, Article 119348. http://dx.doi.org/10.1016/j.jclepro.2019.
√ 𝜆
119348.
2𝜆+1 2 3
𝑎 < 𝑏𝑐(1 − 𝜃𝑚 ), 𝜋𝑚 > 𝜋𝑚 can be derived. Causing of Assumption 3, Qian, X. H., Chan, F., Zhang, J. H., Yin, M. Q., & Zhang, Q. Y. (2020). Channel
𝜆 √ coordination of a two-echelon sustainable supply chain with a fair-minded retailer
the inequality 𝑎 > 𝑏𝑐(1 + 𝜃𝑚 2𝜆+1 𝜆
) must be true, hence 𝜋𝑚2 > 𝜋𝑚3 must under cap-and-trade regulation. Journal of Cleaner Production, 244, Article 118715.
be true.
2 http://dx.doi.org/10.1016/j.jclepro.2019.118715.
𝜋𝑚 𝑎(2𝜆+1)+𝑏𝑐(2𝜆𝜃𝑚 −2𝜆+𝜃𝑚 −1)
4 = 𝑎(𝜆+1)+𝑏𝑐(3𝜆𝜃 −𝜆−2)
, if 𝜃𝑚 > 𝜆(𝑏𝑐−𝑎)−𝑏𝑐+1
𝜆𝑎−1
, 𝜋𝑚2 > 𝜋𝑚4 can be Qin, Y. H., & Shao, Y. F. (2019). Supply chain decisions under asymmetric information
𝜋𝑚 𝑚
with cost and fairness concern. Enterprise Information Systems, 13(10), 1347–1366.
derived. Causing of misreport factor meets 𝜃𝑚 > 0, and 𝜆(𝑏𝑐−𝑎)−𝑏𝑐+1
𝜆𝑎−1
<0 http://dx.doi.org/10.1080/17517575.2019.1638974.
can be proved on account of Assumption 3, 𝜋𝑚2 > 𝜋𝑚4 must be true. Qu, S. J., Zhou, Y. Y., Zhang, Y. L., Wahab, M., Zhang, G., & Ye, Y. Y. (2019). Optimal
𝑀𝑏𝑐𝜃 [2𝜆𝑎−𝑏𝑐(3𝜆𝜃 2 +𝜃 2 +2𝜆𝜃 )]
From 𝜋𝑚4 − 𝜋𝑚3 = 𝑚 𝑚 𝑚
4(2𝜆+1)(2𝑏𝑀−𝜂 2 )
𝑚
, if 𝑎 > 𝑏𝑐(1 + 3𝜆+1
2𝜆 𝑚
𝜃 ), strategy for a green supply chain considering shipping policy and default risk.
4 3 Computers & Industrial Engineering, 131, 172–186. http://dx.doi.org/10.1016/j.cie.
𝜋𝑚 > 𝜋𝑚 can be derived. Causing by Assumption 3, the inequality 2019.03.042.
𝑎 > 𝑏𝑐(1 + 3𝜆+1
2𝜆 𝑚
𝜃 ) must be true, hence 𝜋𝑚4 > 𝜋𝑚3 must be true. Rabinovich, E., Rungtusanatham, M., & Laseter, T. M. (2008). Physical distribution
2 +2𝜆𝜃 +2𝜃 −1)]
𝑀𝑏𝑐[𝑎(2𝜆𝜃𝑚 −𝜃𝑚 −1)−𝑏𝑐(3𝜆𝜃𝑚 service performance and internet retailer margins: The drop-shipping context.
From 𝜋𝑚4 − 𝜋𝑚3 = 4(2𝜆+1)(2𝑏𝑀−𝜂 2 )
𝑚 𝑚
, if
Journal of Operations Management, 26(6), 767–780.
2 +2𝜆𝜃 +2𝜃 −1)
(3𝜆𝜃𝑚
𝑎 > 𝑏𝑐 (2𝜆𝜃 −𝜃 −1) , 𝜋𝑚4 > 𝜋𝑚3 can be derived. Causing by As-
𝑚 𝑚 Shu, L. L., Qu, S. J., & Wu, Z. (2020). Supply chain coordination with optimal pricing
𝑚 𝑚 and logistics service decision in online retailing. Arabian Journal for Science and
2 +2𝜆𝜃 +2𝜃 −1)
(3𝜆𝜃𝑚 𝑚 𝑚
sumption 3, the inequality 𝑎 > 𝑏𝑐 (2𝜆𝜃 must be true, hence Engineering, 45(3), 2247–2261. http://dx.doi.org/10.1007/s13369-019-04265-z.
𝑚 −𝜃𝑚 −1)
𝜋𝑚4 > 𝜋𝑚3 must be true. □ Su, Y. S., Guo, H. M., & Wang, X. Y. (2014). Incentive contract in supply chain
with asymmetric information. Discrete Dynamics in Nature and Society, 2014, Article
380142. http://dx.doi.org/10.1155/2014/380142.
References
Tao, J., Shao, L. S., Guan, Z. M., Ho, W., & Talluri, S. (2020). Incorporating risk
aversion and fairness considerations into procurement and distribution decisions
Chen, P. P., Zhao, R. Q., Yan, Y. C., & Li, X. (2020). Promotional pricing and online in a supply chain. International Journal of Production Research, 58(7), 1950–1967.
business model choice in the presence of retail competition. Omega, 94, Article http://dx.doi.org/10.1080/00207543.2019.1637955.
102085. http://dx.doi.org/10.1016/j.omega.2019.07.001.
Wang, Y. Y., Yu, Z. Q., & Shen, L. (2019). Study on the decision-making and
Cui, T. H., Kong, G. W., & Pourghannad, B. (2020). Is simplicity the ultimate sophis-
coordination of an e-commerce supply chain with manufacturer fairness concerns.
tication? The superiority of linear pricing. Production and Operations Management,
International Journal of Production Research, 57(9), 2788–2808. http://dx.doi.org/
29(7), 1767–1788.
10.1080/00207543.2018.1500043.
Cui, T. H., Raju, J. S., & Zhang, Z. J. (2007). Fairness and channel coordination.
Xia, J., & Niu, W. J. (2020). Pushing carbon footprint reduction along environment
Management Science, 53(8), 1303–1314.
with carbon-reducing information asymmetry. Journal of Cleaner Production, 249,
Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation.
Article 119376. http://dx.doi.org/10.1016/j.jclepro.2019.119376.
The Quarterly Journal of Economics, 114(3), 817–868.
Yan, B., Wang, T., Liu, Y. P., & Liu, Y. (2016). Decision analysis of retailer-dominated
Feng, L. P., Govindan, K., & Li, C. (2017). Strategic planning: Design and coordination
dual-channel supply chain considering cost misreporting. International Journal of
for dual-recycling channel reverse supply chain considering consumer behavior.
Production Economics, 178, 34–41. http://dx.doi.org/10.1016/j.ijpe.2016.04.020.
European Journal of Operational Research, 260(2), 601–612. http://dx.doi.org/10.
1016/j.ejor.2016.12.050. Yan, B., Wu, J. W., Jin, Z. J., & He, S. (2020). Decision-making of fresh agricultural
Guan, Z. M., Ye, T., & Yin, R. (2020). Channel coordination under Nash bargaining product supply chain considering the manufacturer’s fairness concerns. 4OR-A
fairness concerns in differential games of goodwill accumulation. European Journal Quarterly Journal of Operations Research, 18(1), 91–122. http://dx.doi.org/10.1007/
of Operational Research, 285(3), 916–930. http://dx.doi.org/10.1016/j.ejor.2020.02. s10288-019-00409-x.
028. Yang, S. J. S., & Anderson, E. J. (2014). Competition through capacity investment under
Guth, W., Schmittberger, R., & Schwarze, B. (1982). An experimental analysis asymmetric existing capacities and costs. European Journal of Operational Research,
of ultimatum bargaining. Journal of Economic Behavior and Organization, 3(4), 237(1), 217–230. http://dx.doi.org/10.1016/j.ejor.2014.01.042.
338–367. Yang, L., Ji, J. N., & Zheng, C. S. (2016). Impact of asymmetric carbon information on
Han, X. Y., & Liu, X. (2020). Equilibrium decisions for multi-firms considering supply chain decisions under low-carbon policies. Discrete Dynamics in Nature and
consumer quality preference. International Journal of Production Economics, 227, Society, 2016, Article 1369589. http://dx.doi.org/10.1155/2016/1369589.
Article 107688. Zhang, C., Fan, L., & Tian, Y. (2020). Optimal operational strategies of capital-
Hua, G. W., Wang, S. Y., & Cheng, T. C. E. (2010). Price and lead time decisions constrained supply chain with logistics service and price dependent demand under
in dual-channel supply chains. European Journal of Operational Research, 205(1), 3PL financing service. Soft Computing, 24(4), 2793–2806. http://dx.doi.org/10.
113–126. 1007/s00500-019-04500-7.

11
S. Qu et al.
Zhang, Y. J., Rong, F., & Wang, Z. (2020). Research on cold chain logistic service
pricing-based on tripartite stackelberg game. Neural Computing and Applications,
32(1), 213–222.
Zhang, F., & Wang, C. (2018). Dynamic pricing strategy and coordination in a dual-
channel supply chain considering service value. Applied Mathematical Modelling, 54,
722–742. http://dx.doi.org/10.1016/j.apm.2017.10.006.
Zhang, X. Q., Yuan, X. G., & Zhang, D. L. (2020). Research on closed-loop supply
chain with competing retailers under government reward-penalty mechanism and
asymmetric information. Discrete Dynamics in Nature and Society, 2020, Article
7587453. http://dx.doi.org/10.1155/2020/7587453.
12
Computers & Industrial Engineering 174 (2022) 108759
Zheng, X. X., Liu, Z., Li, K. W., & Huang, J. (2019). Cooperative game approaches
to coordinating a three-echelon closed-loop supply chain with fairness concerns.
International Journal of Production Economics, 212, 92–110. http://dx.doi.org/10.
1016/j.ijpe.2019.01.011.
Zhou, J. H., & Chen, X. L. (2020). The impact of service and channel integration on the
stability and complexity of the supply chain. Complexity, 2020, Article 8178947.
http://dx.doi.org/10.1155/2020/8178947.
Zhou, R., Liao, Y., Shen, W. J., & Yang, S. L. (2020). Channel selection and fulfillment
service contracts in the presence of asymmetric service information. International
Journal of Production Economics, 222, Article 107504. http://dx.doi.org/10.1016/j.
ijpe.2019.09.025.