Supply Chain Coordination Problem with Loss-Averse Retailer and Buyback Contract

This paper studies a manufacturer-retailer channel facing uncertain demand. A single manufacturer sells a perishable product to a single retailer in decentralized supply chain. It is assumed that the manufacturer is risk neutral and the retailer is loss averse. The objective is to design the supply contract that provides a win-win coordination mechanism between the manufacturer and the retailer. The analytical and numerical results lend insight into how a manufacturer can design a contract to improve total supply chain performance. In particular, it is shown that the buyback contract can coordinate the supply chain. The impact of the retailer´s loss aversion on the retailer´s optimal order quantity is also investigated.