Risk-aversion information in a supply chain with price and warranty competition

Abstract

We consider a supply chain with one supplier providing basic products to two risk-averse retailers. Each retailer provides a warranty policy for the products to differentiate their products along with pricing strategy. Considering that the risk-aversion level of each retailer is private in most applications, we assume that the retailers’ risk-aversion levels are their respective private information in this paper. Each retailer may choose to disclose her private risk-aversion information to the supplier. We explore the risk-aversion information revelation mechanism of the retailers and propose the supplier’s decisions on whether to accept the revealed information. Our results show that the warranty period added to the product by each retailer is only related to each retailer’s warranty cost efficiency and the consumers’ sensitivity toward warranty. Each retailer is willing to share her risk-aversion level with the supplier only when the real value of her risk-aversion level is lower than the mean value of other participants’ estimation under both the no information leakage scenario and the information leakage scenario. Furthermore, we find that the information leakage has a negative effect on the supplier’s profit if he accepts the shared risk-aversion information.