Supply Chain Contract Choice with Different Behavior Preferences of Retailer

Abstract

Retailer may exhibit irrationality when facing the risk of demand uncertainty; therefore, we consider four retailer behavioral preferences: risk neutral (RN), waste aversion (WA), stockout aversion (SA), and stockout-waste aversion (SW). The decision-making and contract choice of upstream and downstream enterprises in cases where demand depends on supplier’s effort are studied. The results show that if the retailer has only SA or RN preferences, then the supplier prefers to choose a wholesale price contract, while the retailer does the opposite, if the retailer has only WA, then the supplier prefers to choose a revenue sharing contract, but the retailer’s contract choice depends on the degree of waste aversion, and if the retailer has SW, then the contract choice of upstream and downstream enterprises is related to the degree of waste aversion and stockout aversion.