title: Coordinating a supply chain with a loss-averse retailer and effort dependent demand.
abstract: This study investigates the channel coordination issue of a supply chain with a risk-neutral manufacturer and a loss-averse retailer facing stochastic demand that is sensitive to sales effort. Under the loss-averse newsvendor setting, a distribution-free gain/loss-sharing-and-buyback (GLB) contract has been shown to be able to coordinate the supply chain. However, we find that a GLB contract remains ineffective in managing the supply chain when retailer sales efforts influence the demand. To effectively coordinate the channel, we propose to combine a GLB contract with sales rebate and penalty (SRP) contract. In addition, we discover a special class of gain/loss contracts that can coordinate the supply chain and arbitrarily allocate the expected supply chain profit between the manufacturer and the retailer. We then analyze the effect of loss aversion on the retailer's decision-making behavior and supply chain performance. Finally, we perform a numerical study to illustrate the findings and gain additional insights.
authors.affiliation: Science College, Chongqing Jiaotong University, Chongqing 400074, China.
authors.forename: Liying
authors.initials: L
authors.lastname: Li
authors.affiliation: School of Economics and Business Administration, Chongqing Key Laboratory of Logistics, Chongqing University, Chongqing 400044, China.
authors.forename: Yong
authors.identifier: 0000-0002-7242-7834
authors.initials: Y
authors.lastname: Wang
mesh_terms: D003132:Commerce / Q000191:economics* / Q000379:methods*; D017598:Efficiency, Organizational; D004864:Equipment and Supplies / Q000191:economics*; D018803:Models, Economic; D013269:Stochastic Processes