Channel coordination with a loss-averse retailer and option contracts

Three-echelon supply chain coordination with a loss-averse retailer and revenue sharing contracts

“…Corollary 1 states that if the goodwill penalty cost is ignored, then a loss-averse retailer will order less than a loss-neutral retailer, and the loss-averse retailer's optimal order quantity will decrease with the level of loss aversion. This finding is consistent with those of Schweitzer and Cachon (2000) and Chen et al (2014).…”

“…While works mentioned above studied loss-aversion behavior from the perspective of the newsvendor problem, there is a research opportunity in approaching this problem from the viewpoint of supply chain management. Recently, Chen et al (2014) investigated a single-period two-echelon supply chain composed of a risk-neutral supplier and a loss-averse retailer via option contracts. They found that there always exists a Pareto option contract for the studied supply chain configuration.…”

“…There is a kink at the reference level 0. Note that the form of loss aversion utility function adopted in our work has been widely adopted in operations management, finance and economics literature (Kahneman and Tversky, 1979;Schweitzer and Cachon, 2000;Wang and Webster, 2009;Chen et al, 2014).…”

“…Although it is not easy to quantify the loss-averse degree λ, it is possible to conduct experiments to observe it (Kahneman and Tversky, 1979). Consequently, most existing research on supply chain management involving lossaverse players assumes that the level of loss aversion is common knowledge (Wang and Webster, 2009;Chen et al, 2014).…”

Pre-purchasing with option contract and coordination in a relief supply chain

“…Chen et al (2014) demonstrate conditions that can coordinate the supply chain with a loss-averse retailer and option contracts.…”