Channel Coordination with a Risk-Neutral Supplier and a Downside-Risk-Averse Retailer

Xianghua Gan, Suresh P. Sethi, Houmin Yan

Production and Operations Management · 2005 · Volume 14 · Issue 1

DOI: 10.1111/j.1937-5956.2005.tb00011.x

Abstract

We investigate how a supply chain involving a risk-neutral supplier and a downside-risk-averse retailer can be coordinated with a supply contract. We show that the standard buy-back or revenue-sharing contracts may not coordinate such a channel. Using a definition of coordination of supply chains proposed earlier by the authors, we design a risk-sharing contract that offers the desired downside protection to the retailer, provides respective reservation profits to the agents, and accomplishes channel coordination.

Keywords

supply chain management, coordination, risk sharing, downside risk, value at risk

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