Joint decision of pricing and ordering in stochastic demand with Nash bargaining fairness

Abstract Taking fairness concerns of retailer into account, we extend the classical newsvendor model to a new type with Nash bargaining preference. Depending on the demand forms, three models are proposed: one benchmark case for deterministic demand, and two stochastic demand cases for multiplicative and additive patterns, respectively. We mathematically prove the existence and uniqueness of the optimal joint decision on pricing and ordering by maximising the fairness-concerned retailer’s utility function theoretically. The optimal strategy of the supplier is acquired via one dimensional search method numerically. The results show that the optimal price is increasing in terms of the fairness-concerned parameter, Nash bargaining power and wholesale price. But the optimal ordering changes in an opposite way. Numerical examples and experiments agree well with our theoretical analysis. It is worth noting that the degree of retailer’s fairness concerns can improve the retailer’s utility and performance of the supply chain, which is different from the fairness-neutral scenario.