Impact of price sensitivity and risk aversion on buy-back contract

This paper examines the impacts of demand price sensitivity and retailer´s risk aversion on characteristics of the buy back contract. The market demand is stochastic and price dependent. We adopt additive demand model. The supplier is risk neutral while the retailer is risk averse. We formulate the retailer´s decision model in the form of mean-variance. The decision models of the supply chain members constitute a bi-level programming problem. We use numerical method analyze this problem. The cases in which the price sensitivity and risk aversion present different characteristics are studied and the management insights are distilled.