Study On Revenue-sharing Contract Based On Loss Aversion With Unknown Demand Distribution

Expected Utility Theory(EUT) has been playing a magnificent role in studying issues of supply chain management. Some research of related scholars and cases in reality proves that decision makers’practical decisions are often deviate from the optimal decision point made by EUT in recent years, which pose great challenge to EUT. Thus some non-expected theories are developed, for example, Teversky and Kahnemn put forward Prospect Theory. They discarded the hypothesis of ration in EUT, argued that decision maker can not acquire enough information to make reasonable decisions and decision-making process is influenced by psychology and emotion.Research on supply chain contracts at present mostly assume that supply chain members are rational, non-rational factors such as loss aversion and waste aversion are rarely concerned. So it has practical significance to study supply chain coordination problems with loss aversion members involved. On the other hand, with the development of science and technology, the updating speed of products becomes faster, meanwhile consumers are also becoming more selective, the uncertainties in the market bring more risk to enterprises’ demand forecasting, so how to use limited history dates to predict demand precisely has drawn the attention from scholars at home and broad and business communities.Based on Prospect Theory, single loss-averse newsvendor’s robust order policy is firstly proposed by using minimax regret criterion with stochastic demand, when only support information of demand is known; secondly, the feasibility of revenue-sharing contract in coordinating a two-stage loss-averse supply chain which made up of a loss-averse retailer and a risk-neutral supplier, is analyzed by using Stackelberg game, and conditions that must be fulfilled to achieve supply chain coordination is derived; then the supply chain coordination strategy is studied when retailer owns more accurate demand information than supplier; lastly, numerical example is used to evaluate the conclusions.The result shows that single newsvendor’s robust order policy deviates from optimal decision point for lack of demand information, and the gap is increased when loss aversion is considered; the performance of supply chain under decentralized control mode below that under centralized control mode in a two-stage loss-averse supply chain system when supply chain members own symmetric information. The result also shows that such a supply chain can be coordinated perfectly by using revenue- sharing contract, but failed to coordinate the loss-averse supply chain under a situation with asymmetric demand information, supplier’s profit is damaged in order to motivate the retailer to share real demand information.