Biz Sch News 27 May 2015

A Fair Win

Money cannot buy fairness but it appears that fairness can determine where the money goes.

In their paper ‘Distributional and Peer-induced Fairness in Supply Chain Contract Design’, Professor Teck-Hua Ho, Associate Professor Xuanming Su from the Wharton School and Associate Professor Yaozhong Wu, became the first to introduce the concept of peer-induced fairness in the design of business-to-business wholesale pricing contracts. They successfully demonstrated that when making business transactions, supply chain members care about not only their individual profit but also fairness in profit comparisons with one another. So a profit-seeking supplier should strategically incorporate the retailer’s fairness preferences in making contract offers.

Professor Teck-Hua Ho (left) and Professor Wu Yaozhong

Professor Teck-Hua Ho (left) and Professor Wu Yaozhong

Their paper, which took about 18 months to complete, won second place in the Wickham Skinner Awards for Best Paper Published in Production and Operations Management (POM) 2014. POMS is the main professional society in the field of production and operations management and POM is a leading journal in the field.

“In our paper, we added a new dimension to the concept of fairness by modelling peer-induced fairness, that is, when a retailer compares its profits with a supplier’s profits and also with a similar retailer’s profits,” said Professor Wu.

“We showed, theoretically and experimentally, that peer-induced fairness dramatically changes the wholesale price offers of the supplier,” he added.

The paper was shortlisted from among the 150 papers published by the journal in 2014. The recognition was a sweet reward capping 18 months of intense hard work for the three co-authors.

“We would like to thank the NUS Business School, and particularly the Centre for Behavioural Economics, for the support we received from them,” said Professor Wu.