Research on Buy-Back Contract in Supply Chains Based on Mental Accounting Theory

Abstract

Adopting the concept of mental accounting, the paper analyzes loss-aversion retailer’s optimal order quantity under buy-back contract in the two-stage supply chain, and proves the existence and uniqueness of the optimal order quantity. Conclusions show: under the certain degree of loss aversion, there exists a unique repurchase price to achieve supply chain coordination; meanwhile, the system’s optimal order quantity decreases with the retailer’s loss aversion and increases with the buy-back price.