Research of Revenue Sharing Contract Based on Prospect Theory

Most of existing revenue sharing contract models are based on expected utility theory which is a pure rational method and assumed that all decision makers are risk-neutral or loss-neutral. The paper develops a revenue sharing contract model based on prospect theory in which decision makers in the supply chain are all loss-averse. The best order quantity of retailer, effects of retailer´s loss-aversion to retailer´s best order quantity, the supplier´s optimal sharing proportion and trade price, and the effects of supplier´s loss aversion to supplier´s optimal were analyzed. It is extremely important to supply chain management decision makers.