Abstract: When a new product is put into market, it is necessary to consider supply chain risk aversion under the uncertainty of market demands. For such a problem, a utility function for manufacturers and retailers is constructed. Also, based on advertising cost, levels of service, and selling prices, an optimal shortterm decisionmaking model is established. Then, with the model, effects of the demand risk and the risk tolerance level of members in a supply chain on the optimal shortterm decisions for the supply chain is analyzed. Through numerical simulation, the optimal longterm decisions for a supply chain are also analyzed. Results indicate that the optimal advertising cost is a monotonically increasing function of demand risk and a monotonically decreasing function of risk tolerance level. The best selling price and the optimal service level, as differing from an industry to another and other factors, are Ushape or inverted Ushape with the change of demand risk and risk tolerance level. The selling price and the service level need to make different adjustments in different conditions of market when the circumstance of market is changing. The adjustment of advertising cost has nothing to do with the market features. In the long run, the manufacturers can achieve the utility maximization, while the retailer can only make the utility suboptimal.

Key words: new products, demand uncertainty, risk aversion, utility function