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Mathematical Problems in Engineering
Volume 2015, Article ID 385289, 12 pages
http://dx.doi.org/10.1155/2015/385289
Research Article

Optimal Ordering and Disposing Policies in the Presence of an Overconfident Retailer: A Stackelberg Game

1School of Electrical Engineering, Tianjin University of Technology, Tianjin 300391, China
2School of Management, Tianjin University of Technology, Tianjin 300391, China
3Naveen Jindal School of Management, University of Texas at Dallas, Richardson, TX 75080, USA

Received 6 August 2014; Revised 29 October 2014; Accepted 13 November 2014

Academic Editor: Tsan-Ming Choi

Copyright © 2015 Zhigang Wang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

This paper investigates the impact of the retailer’s overconfident behavior on supply chain performance. We start with a basic model on the rational newsvendor model and investigate the retailer’s optimal ordering decision and expected profit. Next, we extend the basic model and introduce an overconfident retailer. We find that the retailer’s overconfident behavior does not necessarily damage the supply chain compared with the basic model when the overconfident level does not exceed a threshold. We also design the cooperation and buyback mechanism and conduct numerical analysis to compare the manufacturer’s and retailer’s expected profits and real profits with those in the basic newsvendor model. It can achieve Pareto improvement in the supply chain when the overconfident level is low. When the retailer’s overconfident level exceeds a threshold, the retailer’s ordering decision cannot make the whole supply chain sustainable development.