Influence and Countermeasure of Overstock Risk on Buyback Contract

Abstract:

In view of the fact that the decision makers in deciding process tend to consider the uncertainty of yielding their expected profits in addition to an investigation of the expected profits,the objective function in buyback contract is taken into account for the purpose of “utility”,an overstockriskaverse factor is proposed to describe the decision activity of a riskaverse retailer,and then a buyback incentive model is constructed correspondingly on the basis of Stackelberg Game.By comparing with the buyback model containing a riskneutral retailer,some quantificational conclusions about the effect of decisionmakers’ overstockriskaverse tendency are drawn:as for an overstockriskaverse retailer,the supplier should adopt an incentive strategy,which means the retailer may get a premium.A targetbuyback incentive strategy on the basis of wholesale price is designed to give a countermeasure to eliminate the effect of the retailer’s overstockriskaverse preference,whose effectiveness is also proved.