Supply Chain Performance with Target-Oriented Firms

Problem definition: We study a supply chain in which supplier sets the wholesale price and retailer responds with an order quantity. Both of two firms can be either risk-neutral—maximizing expected profit—or target-oriented, is to maximize her or his ability reach target profit. Academic/practical relevance: Our work not only sheds light on benefit/loss trading target-oriented decision makers but also, adds new knowledge coordination literature. Methodology: provide strong support for firms’ target-based preference linear formation model through survey as well analyzing company data. With behavior evaluated by CVaR-satisficing measure, we apply game theoretical framework investigate how affects performance. Results: A firm, it retailer, always hurt its benefit from partner’s preference. risk-neutral supplier, example, sometimes reap whole chain’s profit if performs better than one. Furthermore, and/or help alleviate double-marginalization effect specific target, achieve same efficiency level centralized system, just contract. Another important finding that both are then have higher under decentralized system This contrasts case when risk-neutral. also role outside option retailer-type misidentification find retailer’s disadvantage being target-oriented. Managerial implications: (i) The exploited partner, hence, firm should adopt criterion caution. (ii) explore strategies such revealing hiding less manipulated. (iii) Whether (and chain) often depends ambitious partner itself target-oriented) target. (iv) Target-based one first-best efficiency. (v) When decentralization preferred centralization.