Abstract: Considering a supply chain system consisting of a fairness-neutral supplier and a fairness-concerned retailer, where the supplier sells newsvendor-like commodities to the retailer, who can exert promotion effort to enhance stochastic market demand of the commodities. An option contract model is constructed based on fairness preference theory, where the retailer can buy physical goods or options goods.

Key words: supply chain coordination; option contract; fairness preference; sales effort