Dual-channel Supply Chain Pricing Decisions With A Risk-averse Retailer

Recently, Internet-based electronic commerce is becoming an efficienttransaction technology that has encouraged many manufacturers to open up directchannels. For example, firms such as HP, IBM and Apple have all added direct salesin addition to traditional retail channels. The addition of new channels causes channelconflict, including vertical competition between the manufacturer and the retailer andhorizontal competition between the traditional channel and the network channel. Theuncertainties and the risks inherent in supply chain decisions are also increasing. Thus,it is not always accurate to assume that the decision makers in supply chains are riskneutral. In this thesis, we are interested in studying pricing strategies based on acompetition and a cooperation model when the retailer is risk averse in a dual channelsupply chain.This thesis investigates a dual-channel supply chain with one risk-neutralmanufacturer and one risk-averse retailer where there is only one perishable productwith price dependent stochastic demand. We choose Conditional Value-at-Risk(CVaR) criterion to measure the retailer’s risk-averse level. Assuming that themanufacturer’s direct sales channel and the retailer’s traditional channel exist twomodels, namely competition model and cooperation model, we focus on the pricingstrategies when the retailer has risk averse behavior. It is found that when demanduncertainty follows a uniform distribution, a Nash equilibrium under the competitionmodel exists and the retail price, the direct price, and the manufacturer’s profit on hisdirect channel will decrease as the retailer becomes more risk averse. What’s more,the price competition between the manufacturer and the retailer is not necessarilyadvantageous for the manufacturer.Finally, we explore the optimal strategies between the manufacturer and theretailer under cooperation game framework by developing a Nash bargaining problem.We find that when demand uncertainty follows a uniform distribution, a Nashbargaining equilibrium exists and the retail price will decrease as the retailer becomesmore risk averse. However, when the risk-averse indicator increases, themanufacturer’s profit on his direct channel will decrease, increase or first increase andthen decrease, depending on the values of the related parameters. The retailer’sbargaining power for the supply chain profit increases as she becomes more riskaverse only when her risk aversion meets a certain range. On the contrary, her profitshare will decrease with her risk aversion increasing. Furthermore, we performnumerical experiments to verify the effects of the retailer’s risk-averse indicator on decision making and profit allocations under the different channel powers, demandfluctuations and price sensitivities and gain several meaningful managerial insights.