Global ordering decision of the loss-averse retailer based on multiple risks and payment schemes

Abstract

Considering two payment schemes, this paper examines the impact of demand risk, supply risk and exchange rate risk on the optimal ordering policies of a loss-averse retailer that is served by two suppliers in the global supply chain environment. Using prospect theory, we formulate a decision model concerned with utility maximization. We prove the existence of equilibrium and derive the optimal ordering policies. Using comparative static analysis, we analyze the impact of risk parameters on the optimal order quantity and the firm's performance. Finally, we conduct a numerical analysis to illustrate the analytical results.