Channel Coordination with a Risk‐Neutral Supplier and a Downside‐Risk‐Averse Retailer

Xianghua Gan; Suresh Sethi; Houmin Yan

doi:10.1111/j.1937-5956.2005.tb00011.x

Channel Coordination with a Risk‐Neutral Supplier and a Downside‐Risk‐Averse Retailer

Xianghua Gan^1,2; Suresh Sethi¹; Houmin Yan³

¹ The University of Texas at Dallas · ² Southwestern University of Finance and Economics · ³ Chinese University of Hong Kong

Production and Operations Management 2005

We investigate how a supply chain involving a risk‐neutral supplier and a downside‐risk‐averse retailer can be coordinated with a supply contract. We show that the standard buy‐back or revenue‐sharing contracts may not coordinate such a channel. Using a definition of coordination of supply chains proposed earlier by the authors, we design a risk‐sharing contract that offers the desired downside protection to the retailer, provides respective reservation profits to the agents, and accomplishes channel coordination.

DOI: 10.1111/j.1937-5956.2005.tb00011.x
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