Abstract This study aims to build the models under cases that only the retailer has the inequity aversion or both the retailer and the manufacturer have the inequity aversion, respectively. Considering the demand depends on the retail price and the manufacturer’s quality effort level, we investigate the retailer’s optimal retail price, the manufacturer’s optimal wholesale price and quality effort level, and the optimal profits of the retailer and the manufacturer under above two models. The results show that all the retail price, the wholesale price and the quality effort level decrease with the disadvantageous inequity aversion coefficient, the retailer’s inequity aversion behavior not only increases the competitive power of the retailer with the manufacturer, but also frustrates the enthusiasm of the manufacturer to invest on the quality effort. A numerical example is given in the end, and some managerial implications are derived.
2016, Vol. 13 
