Research on option pricing and coordination mechanism of festival food supply chain

Yemei Li, Yanfei Shan and Shuang Ling

Socio-Economic Planning Sciences, 2022, vol. 81, issue C

Abstract: Based on the status quo of festival food waste, we designed a conservation-oriented supply chain, which is a single-cycle food supply chain with two players, including one retailer and one supplier. The retailer, as a follower of the Stackelberg game, can receive the product from the supplier in two ways: at the wholesale price or as a call option. Meanwhile, there are two production modes of the product line: slow and rapid. When the retailer has determined the strike amount, under the early slow production mode, it is difficult to meet the rapid demand for festival food, and the supplier will shift to the rapid production mode. By the nature of the product, there is a certain deterioration rate. Furthermore, the demand achieves a maximum value before the festival, after which the demand plummets. Under the above conditions, we explore the optimal production strategy and the optimal pricing strategy. By comparing the forward contracts under the two benchmarks of centralized supply chains, and decentralized supply chains, our results indicate that, in a decentralized supply chain system, the optimal strike price, wholesale price, and option price are influenced by the retail price, food deterioration rate, and relevant cost. The discount price has no effect on the optimal price. Optimal profit is negatively correlated with demand risk, spoilage rate and production costs, and positively correlated with out-of-stock costs. Through the risk-sharing mechanism of an option contract, both the retailer and the supplier reduce their business risk. In addition, the decentralized supply chain's optimal profit value can be coordinated to the centralized supply chain profit value under certain conditions.

Keywords: Festival food; Newsboy model; Stackelberg game; Stochastic demand (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceps:v:81:y:2022:i:c:s0038012121001919

DOI: 10.1016/j.seps.2021.101199

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