Supply chain coordination based on revenue-sharing contract with retailer having loss-averse preferences

Authors:
Qinghua Pang
Affiliations:
Business School, HoHai University, Changzhou, China
Venue:
CCDC'09 Proceedings of the 21st annual international conference on Chinese control and decision conference
Year:
2009

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Abstract

Revenue-Sharing (RS) contract is a kind of mechanism to improve the performance or to achieve the perfect coordination of supply chain (SC). In the paper, considering retailer has loss-averse preferences, a model of an SC contract aimed at coordinating a two-stage SC is proposed, which is based on revenue sharing mechanism, and the customer demand is stochastic. Then by analyzing the model, the paper explains that how the loss-averse preferences of the retailer influences the optimal order quantity, the quota of revenue sharing and supply chain coordination. The result shows: when the retailer has loss-averse preferences, there exists one order quantity that maximizes his expected utility; in [0, (1-φ)c] and [1-w/v, 1-w/p], there respectively exists only one wholesale price that supplier charges retailer and only one quota of the retailer's revenue that retailer gives to supplier; the wholesale price and the quota are both the decreasing functions of the retailer's loss-averse preferences.