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Coordinating Supply Chain with Buy-Back Contracts in the Presence of Risk Aversion

Chunlin Luo, Xin Tian, Xiaobing Mao () and Qiang Cai ()
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Chunlin Luo: School of Economics and Management, University of Chinese Academy of Sciences, No. 80, East Zhongguancun Road, Beijing 100190, P. R. China2School of Information Technology, Jiangxi University of Finance and Economics, No. 169, East Shuanggang Road, Nanchang, Jiangxi 330013, P. R. China
Xin Tian: School of Economics and Management, University of Chinese Academy of Sciences, No. 80, East Zhongguancun Road, Beijing 100190, P. R. China3Research Center on Fictitious Economy, and Data Science, Chinese Academy of Sciences, No. 80, East Zhongguancun Road, Beijing 100190, P. R. China
Xiaobing Mao: School of Information Technology, Jiangxi University of Finance and Economics, No. 169, East Shuanggang Road, Nanchang, Jiangxi 330013, P. R. China
Qiang Cai: School of Economics and Management, University of Chinese Academy of Sciences, No. 80, East Zhongguancun Road, Beijing 100190, P. R. China

Asia-Pacific Journal of Operational Research (APJOR), 2018, vol. 35, issue 02, 1-19

Abstract: This paper addresses the operational decisions and coordination of the supply chain in the presence of risk aversion, where the risk averse retailer’s performance is measured by a combination of the expected profit and conditional value-at-risk (CVaR). Such performance measure reflects the desire of the retailer to maximize the expected profit on one hand and to control the downside risk of the profit on the other hand. The impact of risk aversion on the supply chain’s decision and performance is also explored. To overcome the inefficiency due to the double marginalization and the aggravation resulting from risk aversion, we investigate the buy-back contract to coordinate the supply chain. Such contract can largely increase the supply chain’s profit, especially when the retailer is more risk averse. Lastly, we extend such risk measure to the widely-used business model nowadays — platform selling model, and explore the impact of the allocation rule on the manufacturer’s decision.

Keywords: Supply chain coordination; mean-CVaR; buy-back contract; platform selling (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1142/S0217595918400080

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