Risk sharing and information revelation mechanism of a one-manufacturer and one-retailer supply chain facing an integrated competitor

This paper develops an information revelation mechanism model of a one-manufacturer and one-retailer supply chain facing an outside integrated-competitor under demand uncertainty. We investigate how the manufacturer designs a wholesale price-order quantity contract to induce the retailer to report his risk sensitivity information truthfully. We try to explore the effects of the outside competitor and the risk-sharing rule on the optimal price-service level decisions of the retailer and the optimal wholesale prices of the manufacturer. We find that the strategic interaction plays an important role in the effect of risk sensitivity on the order quantity for the retailer. When the fraction of the risk cost shared by the manufacturer is sufficiently large (small), the optimal wholesale price for the high risk-averse retailer is higher (lower) than that for the low risk-averse retailer. (C) 2008 Elsevier B.V. All rights reserved.