Channel Coordination with a Risk-Neutral Supplier and a Downside-Risk-Averse Retailer
Production & Operations Management, Vol. 14, No. 1, pp. 80-89, 2005
10 Pages Posted: 11 Feb 2008 Last revised: 28 Apr 2008
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.
Keywords: supply chain management, coordination, risk sharing, downside risk, value at risk,operations management, risk management
JEL Classification: C61, M11, D81, D83
Suggested Citation: Suggested Citation