Supply Chain Sub-Coordination with Options in Two Different Markets with Transaction Cost Considered

The traditional definition of supply chain coordination will be violated if the transaction cost is considered in a supply chain channel. In this paper, we reconsider the decisions of both a retailer and a manufacturer to propose a new definition of sub-coordination. Options contract is presented to analyze the supply chain sub-coordination mechanisms in two different markets, general market and electronic market, respectively. The characteristics of transaction cost in different markets is discussed in detail, and further comparison between the performances of two supply chain models is highlighted to show the possible flexibility and profit improvement offered by the electronic market