Contract Strategies in Competing Supply Chains with Risk-Averse Suppliers

This paper investigates the equilibrium contract strategies of two competing supply chains. Each chain is composed of one risk-averse supplier and one risk-neutral retailer. The two suppliers, as Stackelberg leaders, can choose either wholesale price or revenue sharing contract. We compare the outcomes obtained from different scenarios and study the impact of competition density and risk attitudes on the suppliers’ contract choices. We find that it is always optimal for the first-moving supplier to choose revenue sharing contract if the follower chooses wholesale price contract. We also find that the retail price under revenue sharing contract is lower than that under wholesale price contract. Compared to Pan et al. (2010), we find that a threshold policy with respect to the degree of product substitutability holds in a sequential competition environment. There also exists a threshold policy with respect to the degree of risk aversion for the suppliers to choose their individual contract types and the corresponding chain-to-chain contract strategies.