Dual-channel supply chain decisions under asymmetric information with a risk-averse retailer

Abstract

Many upstream brand manufacturers have established their direct channels to compete with the retailers; this is encroachment behavior by the manufacturers. In this paper, we introduce the retailer’s risk-averse behavior into the manufacturer’s encroachment problem under asymmetric information, focusing specifically on how the risk-averse behavior of the retailer and the per-unit selling cost of the manufacturer influence the optimal decisions. To address this problem, we assume that the market demand may be high or low, and each kind of demand follows a truncated normal distribution. The retailer has more information regarding the market size than the manufacturer. Under the mean–variance decision framework, we develop a dual-channel supply chain model and obtain three feasible regions of the optimal equilibrium results. We find that whether the profit of the manufacturer and the utility of the retailer are better off or worse off depends on the manufacturer’s per-unit selling cost and the degree of risk aversion of the retailer. Numerical experiments provide the comparisons of the expected profits and the utilities of both members in the supply chain under asymmetric information and symmetric information.