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

Author

Listed:
  • Wei Liu

    (Department of Basic Science, Wuhan Donghu University, Wuhan 430212, China
    Department of Information Engineering, Wuhan Business University, Wuhan 430056, 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
    Department of Basic Science, Army Logistics University, Chongqing 401311, China)

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.

Suggested Citation

  • Wei Liu & Shiji Song & Ying Qiao & Han Zhao, 2020. "Supply Chain Coordination with a Loss-Averse Retailer and Combined Contract," Mathematics, MDPI, vol. 8(4), pages 1-20, April.
    • Handle: RePEc:gam:jmathe:v:8:y:2020:i:4:p:586-:d:345572
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    References listed on IDEAS

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    3. Donghong Huang & Jinhui Pang & Lang Liu & Shuangsheng Wu & Taisheng Huang, 2022. "An Emergency Quantity Discount Contract with Supplier Risk Aversion under the Asymmetric Information of Sales Costs," Mathematics, MDPI, vol. 10(6), pages 1-16, March.

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