Manufacturer's Return Policy for Two Risk-Averse Competing Retailers

This paper studies the manufacturer's return policy and the retailers' decisions in a supply chain consisting of one manufacturer and two competing and risk-averse retailers under a single-period framework. The manufacturer sells her short-life-cycle products through two competing retailers, and the product demand is random and sensitive to the retailers' selling prices. We incorporate the risk measure CVaR into the supply chain model to characterize riskaverse retailers so that the retailers' decisions are based upon risk minimization rather than expected profit maximization. We also model the interaction of the manufacturer and the retailers as a manufacturer-Stackelberg game in which the manufacturer acts as a Stackelberg leader, and the retailers act as followers and engage in a simultaneousmove subgame. We conduct a numerical analysis, focusing on identical retailers and a particular demand distribution, and discusses the effects of risk aversion on the chain members' decisions and profits.