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This paper deals with a one-period two-stage supply chain, in which a loss-averse retailer facing stochastic demand orders products from a risk-neutral supplier subject to yield uncertainty. Marketing effort exerted by the retailer is employed to enhance the final market demand. We first establish a performance benchmark, and show that the wholesale price contract fails to coordinate the supply chain due to the effects of double marginalization and loss aversion. Then we propose a revenue-cost-sharing contract in order to achieve supply chain coordination. It is verified that a properly designed revenue-cost-sharing contract can achieve perfect coordination and a win-win outcome synchronously. Our results reveal that it is simple to implement and arbitrarily allocate the total channel profit between the retailer and the supplier. In addition, we examine the effect of the retailer's loss aversion degree on contract parameters and profit allocation, and we show that both the retailer and the supplier can benefit from marketing effort. [ABSTRACT FROM AUTHOR]

Quality competition and risk aversion have become more and more common in today's many industries, making it a challenge to supply chain management and coordination. This paper considers a vendor-managed inventory (VMI) supply chain comprising two risk-averse manufacturers who sell their competing products through a common retailer. Market demand shared by each manufacturer is dependent on the quality level of its own product as well as on the competitor's product quality. The Conditional Value-at-Risk (CVaR) criterion is employed to formulate the risk aversion of manufacturers. This study first develops basic models without coordination mechanism and analyzes the effect of the quality sensitivity, competition intensity, risk aversion degree and cost coefficient of quality improvement on equilibrium decisions and supply chain efficiency. Further, a combined contract composed of option and cost-sharing is proposed to investigate the supply chain coordination issue. The results reveal that the combined contract can coordinate the supply chain and achieve a win-win outcome only when the manufacturers are low in risk aversion, and the system-wide profit of the supply chain can be allocated arbitrarily only by the option price. Also, this research examines the effect of the quality sensitivity, competition intensity, risk aversion degree and cost coefficient of quality improvement on the feasible region of option price. [ABSTRACT FROM AUTHOR]

This paper addresses a vendor-managed inventory (VMI) supply chain with a loss-averse manufacturer and a risk-neutral retailer. Market demand faced by the retailer is stochastic and dependent on product quality level and marketing effort level. We propose a combined contract composed of option and cost-sharing to investigate coordination and profit allocation issues of the supply chain. To model loss aversion of the manufacturer, we employ multiple mental accounts and apply the utility function to upside and downside potentials of manufacturer's production decision separately. We derive the optimal strategy for each member with a Stackelberg game in which the retailer acts as the leader. It is proved that both coordination of the supply chain and Pareto-improvement can be achieved synchronously by the combined contract. In the premise of coordination, the system-wide profit can be allocated arbitrarily only by option price. Through negotiation, the retailer and the manufacturer just need to confirm an appropriate option price to obtain that neither of them becomes worse off. We also find that the manufacturer's loss aversion is a significant element for contract design and profit allocation, and the manufacturer could benefit from its own loss aversion behavior under certain condition. [ABSTRACT FROM AUTHOR]