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Annals of Operations Research

, Volume 248, Issue 1–2, pp 471–491 | Cite as

Option pricing and coordination in the fresh produce supply chain with portfolio contracts

  • Chong Wang
  • Xu Chen
Original Paper

Abstract

This paper studies a fresh produce supply chain that consists of a supplier and a retailer in a newsvendor framework. The supplier is the Stackelberg leader and the retailer is the follower. The retailer can obtain products from the supplier by wholesale price and call option portfolio contracts. The fresh produce incurs a circulation loss in quantity during its transportation. The retailer’s optimal ordering policy and the supplier’s optimal pricing policy are derived in the presence of portfolio contracts and circulation loss. It is demonstrated that, as the prices of option increase toward their optimal, the supplier’s expected profit increases whereas the retailer’s expected profit decreases, and the retailer is more sensitive to the price change. It is also found that the fresh produce supply chain can be coordinated by the portfolio contracts, and Pareto improvement for both chain members can also be achieved as compared with the non-coordinated contracts. However, when the supply chain is coordinated, the supplier cannot realize its optimal pricing strategy. Finally, it is shown that the supplier’s optimal option pricing policy is independent to the demand risk and wholesale price, and the circulation loss of fresh produce increases the management risks of the fresh produce supply chain.

Keywords

Fresh produce Call option contracts Pricing Supply chain management 

Notes

Acknowledgments

The authors are supported by the National Natural Science Foundation of China (Nos. 71272128, 71301019, 71432003), Program for New Century Excellent Talents in University (No. NCET-12-0087), Specialized Research Fund for the Doctoral Program of Higher Education (No. 20130185110006), and Philosophy and Social Sciences Research Program of Sichuan Province (No. SC15E055).

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.School of ManagementSichuan Agricultural UniversityChengduChina
  2. 2.School of Management and EconomicsUniversity of Electronic Science and Technology of ChinaChengduChina

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