Loss-averse buyers' optimal procurement decision in a multi-sourcing under e-commerce surroundings

Abstract

PurposeWith the rapid development of e-commerce, multi-sourcing with supply contracts and spot buying has become more and more popular in reality. The main purpose of the paper is to explore a loss-averse buyer's optimal procurement policy in a multi-sourcing under e-commerce surroundings.Design/methodology/approachThe study introduces the loss aversion utility function to characterize the loss aversion effect and derives a loss-averse buyer's optimal procurement policy in a multi-sourcing with a wholesale price contract and spot market.FindingsA loss-averse buyer could order no items in a wholesale price contract and only needs to replenish commodities from spot market under certain conditions. In addition, the study shows that spot capacity has important influences on a loss-averse buyer's optimal ordering decision in the wholesale price contract.Originality/valueThis is the first paper to study the loss aversion effect on a buyer's procurement decision in a multi-sourcing. The results present important managerial insights for a loss-averse buyer to devise optimal ordering policies in a multi-sourcing under e-commerce surroundings.