Coordination of a supply chain with a loss-averse retailer under supply uncertainty and marketing effort

Wenying Xie; Bin Chen; Fuyou Huang; Juan He

doi:10.3934/jimo.2020125

Article Contents

2021, Volume 17, Issue 6: 3393-3415. Doi: 10.3934/jimo.2020125

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Coordination of a supply chain with a loss-averse retailer under supply uncertainty and marketing effort

1.
School of Transportation and Logistics, Southwest Jiaotong University, Chengdu 610036, China
2.
Institute of Transportation Development Strategy & Planning of Sichuan Province, Chengdu 610041, China
3.
School of Transportation and Logistics, Southwest Jiaotong University, Chengdu 610036, China

^* Corresponding author: Fuyou Huang
^* Corresponding author: Fuyou Huang

Received: January 2020

Revised: May 2020

Early access: June 2020

Published: November 2021

The paper is supported by the National Natural Science Foundation of China (Grant No.71273214), the Humanities and Social Sciences of Education Ministry of China (Grant No. 18YJAZH024), the Science and Technology Project of Sichuan Province (Grant No. 20CXTD0081) and the Science and Technology Project of Transportation Department of Sichuan Province (Grant No. 2019-D-05)

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Abstract

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.

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Mathematics Subject Classification: Primary: 90B50; Secondary: 91B30.

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Figure 1. Wholesale price with respect to revenue-sharing coefficient under different loss aversion degrees

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Figure 2. Cost-sharing coefficient with respect to wholesale price under different loss aversion degrees

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Figure 3. Allocation of additional expected profit under coordination

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Figure 4. Effect of loss aversion on order quantity

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Figure 5. Effect of loss aversion on marketing effort level

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Figure 6. Effect of loss aversion on expected profit

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Figure 7. Effect of loss aversion on profit allocation

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Figure 8. Production quantity with respect to $ k $

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Figure 9. Marketing effort level with respect to $ k $

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Figure 10. Expected profit with respect to $ k $

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