To be generous or spiteful? A bilateral exploration of fairness preferences in supply chains with downstream competition

Abstract Fairness breeds long‐term partnerships in supply chains, yet stakeholders may differ in their perceptions of fair profit allocation. This study examines how fairness preferences, categorized as generosity and spite, affect ordering decisions and profit allocation between one supplier and two competing retailers. Supported by our exploratory survey confirming that firms actively monitor their relative profit shares in routine operations, our analytical results reveal that the impacts of fairness on supply chains differ in different power structures. Under supplier‐led scenarios, supplier spite harms all parties, whereas supplier generosity benefits both retailers and the overall supply chain. Importantly, while supplier generosity can lead to win–win outcomes if matched by retailer generosity, lose–lose situations are more common, especially when suppliers act spitefully. Therefore, influential suppliers should spearhead efforts to cultivate a productive environment, due to their central role in supply chains. In retailer‐led settings, however, retailer fairness preferences do not influence equilibrium outcomes, as retailers can directly control outcomes via procurement decisions. While supplier generosity still benefits the overall supply chain, it precludes the potential for win–win outcomes, leading to situations where only the supplier suffers. That is, suppliers in retailer‐led contexts should secure their positions rather than feel pressured to always display generosity. Lastly, we examine asymmetric retailer behavior and perception biases regarding fair profit shares. Moderate generosity by one retailer can ease competition and benefit supply chains, while perception biases may trigger shifts for others. These findings explain how fairness preferences and downstream competition reshape supply chain partnerships and outcomes.