Open AccessCoordination of a supply chain with a loss-averse retailer under supply uncertainty and marketing effort
Author(s) -
Wenying Xie,
Bin Chen,
Fuyou Huang,
Jiangbiao He
Publication year - 2021
Publication title -
journal of industrial and management optimization
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.325
H-Index - 32
eISSN - 1553-166X
pISSN - 1547-5816
DOI - 10.3934/jimo.2020125
Subject(s) - supply chain , channel coordination , revenue sharing , profit (economics) , microeconomics , business , loss aversion , revenue , order (exchange) , economic order quantity , risk aversion (psychology) , yield (engineering) , industrial organization , supply chain management , economics , marketing , expected utility hypothesis , finance , materials science , mathematical economics , metallurgy
This paper deals with a one-period two-stage supply chain, in which a loss-averse retailer facing stochastic demand orders products from a risk-neutral supplier subject to yield uncertainty. Marketing effort exerted by the retailer is employed to enhance the final market demand. We first establish a performance benchmark, and show that the wholesale price contract fails to coordinate the supply chain due to the effects of double marginalization and loss aversion. Then we propose a revenue-cost-sharing contract in order to achieve supply chain coordination. It is verified that a properly designed revenue-cost-sharing contract can achieve perfect coordination and a win-win outcome synchronously. Our results reveal that it is simple to implement and arbitrarily allocate the total channel profit between the retailer and the supplier. In addition, we examine the effect of the retailer's loss aversion degree on contract parameters and profit allocation, and we show that both the retailer and the supplier can benefit from marketing effort.