Quality investment and price decision in a risk-averse supply chain |
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Authors: | Gang Xie Wuyi YueShouyang Wang Kin Keung Lai |
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Affiliation: | a Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China b Department of Intelligence and Informatics, Konan University, 8-9-1 Okamoto, Kobe 658-8501, Japan c Department of Management Sciences, City University of Hong Kong, Hong Kong |
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Abstract: | In this paper, we investigate quality investment and price decision of a make-to-order (MTO) supply chain with uncertain demand in international trade. Due to volatility of orders from buyers, the supplier and the manufacturer in the supply chain are subject to financial risk. In contrast to the general assumption that players in a supply chain are risk neutral in quality investment and price decision, we consider the risk-averse behavior of the players in three different supply chain strategies: Vertical Integration (VI), Manufacturer’s Stackelberg (MS) and Supplier’s Stackelberg (SS). The study shows that both supply chain strategy and risk-averse behavior have significant impacts on quality investment and pricing. Compared to a risk-neutral supply chain, a risk-averse supply chain has lower, same and higher quality of products in VI, MS and SS, respectively. Also, we derive the conditions under which the supply chain strategy is implemented in a decentralized setting. A numerical study is used to illustrate some related issues. |
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Keywords: | Quality investment Supply chain strategy Preference theory Make-to-order Risk tolerance |
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