Revenue-Sharing contract of supply chain with waste-averse and stockout-averse preferences

Abstract

Revenue-sharing (RS) contract is a kind of mechanism to improve the performance or to achieve the perfect coordination of supply chain (SC). In this paper, considering that supplier and retailer both has stockout-averse preferences, we propose a model of an SC contract aimed at coordinating a two-stage SC, which is based on revenue sharing mechanism, and the customer demand is stochastic. Then by analyzing the model, the paper explains that how the decision bias of supplier and retailer influences the optimal order quantity and supply chain coordination. The result shows: when retailer and supplier has different decision bias (waste-averse and stockout-averse), only the coefficient of the SC members' decision bias satisfies some functions, can the SC based on RS contract coordinate, and the parameters of RS contract are increasing (decreasing) function of their decision bias coefficient.