Supply Chain Contract with Put and Call Option: The Case of Non-Linear Option Premium Price

Saithong, Chirakiat; Luong, Huynh Trung

doi:10.7232/iems.2013.12.2.085

Cited by 1 publication

(1 citation statement)

References 16 publications

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“…Sharing the same demand assumptions, Lin et al (2007) investigated the retailer’s optimal order strategy in a supplier-led SC with a wholesale call option contract. Saithong and Luong (2013) proposed a bidirectional commitment option contract with a non-linear premium price. They set a non-linear relationship between the option quantity and the option price and try to coordinate the SC through the contract parameters.…”

Section: Literature Reviewmentioning

confidence: 99%

Pricing supply chain option contracts: a bilevel programming approach

Trabelsi

Matsukawa

2020

JM2

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Purpose This paper considers an option contract in a two-stage supplier-retailer supply chain (SC) when market demand is stochastic. The problem is a Stackelberg game with the supplier as a leader. This research assumes demand information sharing. The purpose of this study is to determine the optimal pricing strategy of the supplier along with the optimal order strategy of the retailer in three option contract cases. Design/methodology/approach The paper model the option contract pricing problem as a bilevel problem. The problem is then solved using bilevel programing methods. After computing, the generated outcomes are compared to a benchmark (wholesale price contract) to evaluate the contract. Findings The results reveal that only one of the contract cases can arbitrarily allocate the SC profit. In both other cases, the Stackelberg supplier manages to earn the total SC profit. Further analysis of the first contract, show that from the supplier’s perspective, the first stage forecast inaccuracy is beneficial, whereas the demand uncertainty in the second stage is detrimental. This contracting strategy guarantees both players better outcomes compared to the wholesale price contract. Originality/value To the best of the authors’ knowledge, this research is the first that links the option contract literature to the bilevel programing literature. It also the first to solve the pricing problem of the commitment option contract with demand update where the retailer exercises the option before knowing the exact demand.

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Section: Literature Reviewmentioning

confidence: 99%