Implications of risk aversion behavior on the green product promotion strategy under manufacturer encroachment

This paper considers a supply chain in which a manufacturer produces green products and distributes through a physical retailer. The retailer would like to make promotional investments to boost the market and the manufacturer determines whether to encroach the market directly. In the face of the channel competition and cannibalization, coupled with demand uncertainty, the retailer is considered to be risk averse and this attitude is measured by the CVaR method. In particular, the impacts of manufacturer encroachment and cooperative advertising on supply chain participants’ performance are explored. The results show that without cost-sharing contract, the manufacturer and the entire supply chain can benefit from the manufacturer's encroachment whereas the retailer always suffers. However, the retailer's risk-averse behavior can alleviate the profit loss. Furthermore, we find that under the cost-sharing contract, both of the chain members can achieve pareto improvement when the manufacturer encroaches the market.