Loss-averse preferences in a two-echelon supply chain with yield risk and demand uncertainty

Shaofu Du (), Yujiao Zhu (), Tengfei Nie () and Haisuo Yu ()
Additional contact information
Shaofu Du: University of Science and Technology of China
Yujiao Zhu: University of Science and Technology of China
Tengfei Nie: University of Science and Technology of China
Haisuo Yu: University of Science and Technology of China

Operational Research, 2018, vol. 18, issue 2, No 5, 388 pages

Abstract: Abstract We consider a one-period two-echelon supply chain composed of a loss-averse supplier with yield randomness and a loss-averse retailer with demand uncertainty. At the beginning of the selling season, the retailer orders from the supplier via the wholesale price contract, and then the supplier makes his production decision. We derive the loss-averse retailer’s optimal ordering policy and the loss-averse supplier’s optimal production policy under these conditions. In addition, we discuss the effect of loss aversion on both parties’ decision making and show how loss aversion contributes to decision bias. Furthermore, we find that the loss-averse retailer’s optimal order quantity may increase in wholesale price and decrease in retail price which is differ from the risk-neutral case where the optimal order quantity is always decreasing in wholesale price and increasing in retail price. Finally, numerical examples are presented to illustrate how loss aversion and yield variance contribute to the supply chain performance.

Keywords: Loss aversion; Yield risk; Wholesale price contract; Supply chain performance (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://link.springer.com/10.1007/s12351-016-0268-3 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:operea:v:18:y:2018:i:2:d:10.1007_s12351-016-0268-3

Ordering information: This journal article can be ordered from
https://www.springer ... search/journal/12351

DOI: 10.1007/s12351-016-0268-3

Access Statistics for this article

Operational Research is currently edited by Nikolaos F. Matsatsinis, John Psarras and Constantin Zopounidis

More articles in Operational Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().