Abstract—The loss averse retailer sells the newsboy type of product to the consumers in a one-period two-echelon supply chain, where the risk neutral manufacturer supply the product to the retailer. When the market demand only depend on the retailer's advertising investment and is uncertain, this paper discusses the manufacturer's participation rate ,the retailer's advertising expenditures and order quantity decision problems in a Stackelberg game. After characterizing the equilibrium solution of this game, this paper show the effect of each parameter on optimal decisions. The results reveal that the loss averse retailer's optimal order quantity is less than the risk neutral retailer's optimal decision and decrease as the loss aversion level increases. Maybe it's the reason that the upstream manufacturer will share the advertising investment of the downstream retailer, the retailer's optimal local advertising expenditure is yet greater than the risk neutral retailer's optimal decision and is increasing in the loss aversion level. When the degree of loss aversion become larger ,the manufacturer's optimal participation rate first increases and then decreases until zero. The numerical example is given to analyze the effects of parameter on some optimal decisions and also confirm the relevant conclusion.

Index Terms—Cooperative advertising, loss aversion, stackelberg game, demand uncertainty, supply chain management.

The author is with Department of Mathematics, Chengdu Textile College, Chengdu, China (email: roraldo9@163.com).

Cite: Lei Jiang, "Supply Chain Cooperative Advertising and Ordering Model for the Loss Averse Retailer," International Journal of Applied Physics and Mathematics vol. 8, no. 3, pp. 31-44, 2018.