Supply Chain Pricing Models Considering Risk Attitudes under Free-Riding Behavior

Abstract

The free-riding behavior of companies that do not act will bring losses to companies that provide services. A market consists of two secondary supply chains: manufacturers and retailers. Each supply chain can choose to adopt promotional strategies to expand its market demand. This paper constructs the centralized decision-making in the supply chain and the Nash game competition model between supply chains and primarily studies the impact of risk aversion and the free-riding coefficient on supply chain pricing, promotion strategy selection, and expected utility. We show that the supply chain with high-risk aversion has relatively low pricing, but the demand and a total expected utility are high. We also identify that, on the premise of the same risk aversion degree of the two supply chains, when the free-riding coefficient between the chains is small and equal, the supply chain tends to implement the promotion strategy. When consumers have the same preference for the products of two retailers, the pricing of the free-riding supply chain increases with the increase in the free-riding coefficient, while the supply chain with a promotion strategy is the opposite. Based on the numerical results, we further give the optimal one-way free-riding coefficient when the two supply chains have the same degree of risk aversion; when there is a bidirectional free-riding behavior in the market, competition among supply chains gradually tends to the first two scenarios.