Abstract
We consider a fresh product supply chain consisting of one fresh product supplier and one e-tailer. Supplier sells fresh products through e-tailer in an online market, and the e-tailer offers a full-refund return policy to loss-averse consumers and exerts a fresh-keeping effort to keep the product at the optimum freshness level. By developing an analytical model, we derive the optimal price, quantity, and fresh-keeping effort jointly and verify that it is unique in the centralized setting. Based on the comparison, we demonstrate that the e-tailer’s profit is greater with fresh-keeping effort than without it; therefore, the e-tailer has an incentive to engage in fresh-keeping effort. We also show that the return rate is independent of the fresh-keeping effort and consumers’ loss aversion. In the decentralized setting, we first characterize the optimal wholesale price by the numerical study and then find that although the buyback contract still works, the revenue-sharing contract fails to achieve channel coordination under our model formulation. Furthermore, we develop a revenue- and cost-sharing contract that can coordinate the supply chain by designing a new contractual mechanism. Our numerical studies offer the Pareto improvement regions under the buyback and revenue- and cost-sharing contracts in which the supplier and e-tailer can earn more expected profits compared with being under wholesale price contract.
Highlights
With the development of e-commerce, the e-tailing of fresh products has grown faster in the last ten years in China
We show that the return rate is independent of the fresh-keeping effort and consumers’ loss aversion
We examine whether the Pareto improvement is possible in the coordinated setting with contracts, even when the supply chain is affected by consumer returns, consumers’ loss aversion, and fresh-keeping efforts
Summary
With the development of e-commerce, the e-tailing of fresh (agricultural) products (e.g., live seafoods, fresh meats, fresh fruits, and fresh vegetables) has grown faster in the last ten years in China. Consumers may be more hesitant to make a purchasing decision and more likely to return the product when it does not satisfy their expectation It indicates that more fresh-keeping efforts by the e-tailer may lead to a lower return rate. Given loss-averse consumers and full-refund return policies, the first goal of this paper is to capture the joint decisions of price, quantity, and fresh-keeping effort and to investigate whether the supply chain has an incentive to exert a freshkeeping effort in the centralized setting; the second goal is to examine supply chain contracts and channel performance in the decentralized setting. We construct an analytical model and derive the price, quantity, and fresh-keeping effort in the centralized and decentralized settings, offering a useful way to characterize the joint optimal decisions in the fresh product e-tailing market.
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