Channel coordination with a loss-averse retailer and option contracts
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
Original language | English |
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Pages (from-to) | 52-57 |
Journal / Publication | International Journal of Production Economics |
Volume | 150 |
Online published | 12 Dec 2013 |
Publication status | Published - Apr 2014 |
Link(s)
Abstract
We investigate a one-period two-echelon supply chain composed of a risk-neutral supplier that produces short life-cycle products and a loss-averse retailer that orders from the supplier via option contracts and sells to end-users with stochastic demand in the selling season. When a single retail season begins, the retailer can obtain goods by purchasing and exercising call options. We derive the loss-averse retailer's optimal ordering policy and the risk-neutral supplier's optimal production policy under these conditions. In addition, we find that the loss-averse retailer may order less than, equal to, or more than the risk-neutral retailer. Further, we show that the loss-averse retailer's optimal order quantity may increase in retail price and decrease in option price and exercise price, which is different from the case of a risk-neutral retailer. Finally, we study coordination of the supply chain and show that there always exists a Pareto contract as compared to the non-coordinating contracts. © 2013 Elsevier B.V.
Research Area(s)
- Finance-operations-interface, Loss aversion, Option contracts, Supply chain coordination, Supply chain management
Citation Format(s)
Channel coordination with a loss-averse retailer and option contracts. / Chen, Xu; Hao, Gang; Li, Ling.
In: International Journal of Production Economics, Vol. 150, 04.2014, p. 52-57.
In: International Journal of Production Economics, Vol. 150, 04.2014, p. 52-57.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review