The effect of risk tolerance in mobile game supply chain pricing and effort decisions

Benyong Hu and Chao Meng

Journal of the Operational Research Society, 2021, vol. 72, issue 10, 2301-2316

Abstract: In this paper, we study a mobile game supply chain selling a mobile game. We consider two major players in the supply chain: a mobile game developer who develops the mobile game (i.e. supplier) and a mobile game distributor who publishes and sells the mobile game (i.e. retailer). The developer determines its wholesale price and product quality efforts, while the distributor determines its markup and product sale efforts. To this end, we derive the supply chain players’ optimal decisions under a Nash equilibrium. We investigate the impact of effort efficiency on the supply chain player’s optimal pricing and effort decisions. We show that risk aversion may not always lead to conservative supply chain decisions, and risk seeking may not always lead to aggressive decisions. Our analyses indicate that moderate risk-seeking can mitigate double marginalisation in a decentralized supply chain. However, optimal supply chain decisions cannot be made by simply adjusting the supply chain player’s level of risk tolerance.

Date: 2021
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DOI: 10.1080/01605682.2020.1780964

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