Decision-Making and Coordination of Supply Chain with Loss-Aversion under Asymmetric Information

Abstract

Abstract: A supply chain composed of a risk-neutral supplier and a loss-averse retailer is discussed in this paper. For such a supply chain, market demands are uncertain and it is assumed that the information of agents'attitude towards to the risks is asymmetric. Stackelberg game is used to analyze the agents'behavior under decentralized decisionmaking, while revenue-sharing contract is designed to coordinate the supply chain under centralized decision-making. Then, analysis is done and results show that, under decentralized decision-making, the asymmetric information of agents'attitude towards to the risks results in further efficiency loss of the supply chain with respect to “double marginal effect”. However, revenue sharing contract can eliminate the influence of asymmetric information so as to improve the loss-averse retailer's optimal ordering quantity. A numeral study shows that information sharing can obviously increase the agents'expected utilities in the supply chain.

Key words: loss aversion, asymmetric information, supply chain coordination, revenue sharing contract

Wang Yong, Zhu Long-tao. Decision-Making and Coordination of Supply Chain with Loss-Aversion under Asymmetric Information[J]. Industrial Engineering Journal , 2012, 15(6): 50-56.

References

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