Supply Chain Coordination with a Loss-Averse Retailer and Combined Contract

Wei Liu, Shiji Song, Ying Qiao and Han Zhao
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Wei Liu: Department of Basic Science, Wuhan Donghu University, Wuhan 430212, China
Shiji Song: Department of Automation, Tsinghua University, Beijing 100084, China
Ying Qiao: Financial Department, Wuhan Business University, Wuhan 430056, China
Han Zhao: Department of Automation, Tsinghua University, Beijing 100084, China

Mathematics, 2020, vol. 8, issue 4, 1-20

Abstract: This paper studies the supply chain coordination where the retailer is loss-averse, and a combined buyback and quantity flexibility contract is introduced. The loss-averse retailer’s objective is to maximize the Conditional Value-at-Risk of utility. It is shown the combined contract can coordinate the chain and a unique coordinating wholesale price exists if the confidence level is below a threshold. Moreover, the retailer’s optimal order quantity, expected utility and coordinating wholesale price are decreasing in loss aversion and confidence levels, respectively. We also find that when the contract parameters are restricted, the combined contract may coordinate the supply chain even though neither of its component contracts coordinate the chain.

Keywords: loss aversion; Conditional Value-at-Risk; supply chain coordination; contract design (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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