Revenue-sharing contract with supplier having loss-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 the paper, considering supplier has loss-averse preferences, a model of an SC contract aimed at coordinating a two-stage SC is proposed, which is based on revenue sharing mechanism, and the customer demand is stochastic. Then by analyzing the model, the paper explains that how the loss-averse preferences of the supplier influences the optimal order quantity, the quota of revenue sharing and supply chain coordination. The result shows: when supplier has loss-averse preferences, there exists one order quantity that maximizes his expected utility; in [(1-ϕ)c, c] and [(c-w)/c, (c-w)/v], there respectively exists only one wholesale price that supplier charges retailer and only one quota of the retailer's revenue that retailer gives to supplier; the wholesale price and the quota are both the increasing functions of the supplier's loss-averse preferences.