Coordination of supply and demand network in presence of risk and simulation.

This paper studied the coordination of a two-tier supply and demand system under stochastic demand. It considered a two-stage supply and demand system which consisted one risk-averse retailer and one risk-averse manufacturer-retailer had wholesale pricing power, manufacturer decided the optimal quantity. It built a system coordination model based on gain/cost sharing contract, got the optimal expression of wholesale price, sale effort and order quantity. Through the simulation, it analysed the effects of manufacturer's and retailer's risk aversion coefficient on supply and demand system through numerical example. It also proved that when the loss aversion coefficient of the system is bigger than manufacturer's and retailer's risk aversion coefficient, gain/cost sharing contract can coordinate the system completely. [ABSTRACT FROM AUTHOR]