Managing Distrust-Induced Risk with Deposit in Supply Chain Contract Decisions

Table 1

Notations.

	Supplier		Retailer
Public information	𝑝𝑆	Supplier’s wholesale price	𝑝𝑅	Retailer’s retail price 𝑝𝑅<𝑝𝑆
	𝑐	Product cost of each product	𝑇0	Reputation induced being trust 0<𝑡0<1
	𝑐𝑘	Capacity setup cost of each product	𝜀	Market fluctuation 𝜀∼𝜏(𝜀)
Private information	𝜇𝑆	Forecasted average demand by supplier →	𝜇𝑆	Evaluation about 𝜇𝑆𝜇𝑆∼𝜑(𝜇𝑆∣𝜇𝑅)
			𝜇𝑅	Forecasted average demand from retailer’s perspective
Decision variable	𝑄	Capacity	𝜇𝑅𝑆	Reported average demand
	𝑚	Deposit index
Evaluated information	Δ𝑆	The demand gap evaluated by supplier Δ𝑆=𝜇𝑅𝑆−𝜇𝑆/𝜇𝑆	Δ𝑅	The demand gap evaluated by retailer Δ𝑅=𝜇𝑅𝑆−𝜇𝑆/𝜇𝑆
	𝑇𝑆	Trust on retailer reported average demand 0<𝑡𝑆<1	𝑇𝑅	Retailer evaluated being trust level 0<𝑡𝑅<1
Objective	Π𝑆	Supplier’s expected profit in the decentralize supply chain	Π𝑅	Retailer’s expected profit in the decentralize supply chain
	Π𝑆	Supplier’s expected profit in the supply chain with the risk management	Π𝑅	Retailer’s expected profit in the supply chain with the risk management