Risk-Averse Portfolio Procurement Strategy Under Large-Scale Promotion Online

Abstract

The large-scale promotion online brings great challenges to e-tailers, such as the uncertain demand caused by strategic customer behaviors and the unreliable supply from suppliers. In this article, a portfolio procurement strategy (PPS) that incorporates a long-term contract and a spot market is proposed. From the perspective of a risk-averse e-tailer, we identify conditions under which the e-tailer should procure, via the unreliable supply contract only, the spot market only, or both. The impacts of risk aversion and strategic customers on the optimal procurement strategy are also investigated. The results show that, when procurement price via contract lies between two thresholds, the e-tailer chooses PPS, and otherwise chooses supply contract or spot market only. The PPS is more likely to be used if the e-tailer is more risk-averse, the supply is more unreliable, or there are more strategic customers.