Dual-channel supply chain pricing decisions with a risk-averse retailer

Abstract

This paper investigates a dual-channel supply chain with one risk-neutral manufacturer and one risk-averse retailer where there is only one perishable product with price-dependent stochastic demand. We choose Conditional Value-at-Risk criterion to measure the retailer’s risk-averse level, and assume that the manufacturer’s direct sales channel and the retailer’s traditional channel adopt a consistent pricing strategy. The model explores a Nash bargaining problem where the manufacturer and the retailer negotiate with each other on the wholesale price, the retail price and the order quantity when they have equal bargaining power. It is found that when demand uncertainty follows a uniform distribution, a Nash bargaining equilibrium exists and the retail price will decrease as the retailer becomes more risk averse. However, when the risk-averse indicator increases, the manufacturer’s profit on his direct channel will decrease, increase or first increase and then decrease, depending on the values of the related parameters. The profit shares of the manufacturer and the retailer under the Nash equilibrium model are related to the risk-averse indicator of the retailer. Furthermore, we perform three sets of numerical experiments to verify the effects of the retailer’s risk-averse indicator on decision-making and profit allocations under the different environmental parameters and gain several meaningful managerial insights.

Keywords:

• dual-channel supply chain
• Nash bargaining equilibrium
• risk averse
• CVaR

Acknowledgements

The author is grateful to the referees for their useful comments and suggestions, which improved the presentation of the paper.

Funding

This work is supported by the Program for New Century Excellent Talents in University, China [grant number NCET-06-0236]; Specialized Research Fund for Doctoral Program of Higher Education, China [grant number 20100032110034] and the Humanity and Social Science foundation of Ministry of Education, China [grant number 12YJAZH052].