Common Contracts
1 similar Return Policy Contract contracts
A return-policy contract for a loss-averse game considering inventory inaccuracyReturn Policy Contract • April 21st, 2015
This article addresses a loss-averse retailer and a risk-neutral manufacturer decentralized supply chain wherein the manufacturer offers an item to the retailer in a stochastic demand market, considering inventory inaccuracy that includes temporary and permanent shrinkages. The manufacturer attempts to offer a cheaper wholesale price and a buy-all-back commitment to the retailer in hopes of operating the chain as a risk-neutral centralized chain. The objective is to jointly negotiate the wholesale price and buyback price to coordinate the chain, during which we find that once the two prices are negotiated, the manufacturer’s profit remains independent of the level of loss aversion if the demand follows a uniform distribution, and the retailer’s profit would not benefit from a high loss aversion level. Also, compared to the temporary shrinkage, the permanent shrinkage significantly compromises the return contract efficiency. Many managerial insights are observed hereafter.
