COORDINATING THE DECISIONS OF A RISK-AVERSE SUPPLIER AND A RISK-AVERSE RETAILER IN TERMS OF CONDITIONAL VALUE-AT-RISK

Abstract

Based on the CVaR measure, this paper introduces a Cooperation and Competition model for the risk management of the two-stage supply chain. It is supposed that both the supplier and the retailer are risk-averse and their objectives are to minimize their own CVaR (Conditional Value-at-Risk) objective instead of the expected profit. We introduce an optimal equilibrium solution to this model, which implies the supplier and the retailer should give up a same value no more than for their cooperation. It is proved that the optimal equilibrium solution can be obtained by solving a corresponding mathematical programming problem. Numerical results show that this method is efficient to improve the risk management of the two-stage supply chain.