Abstract: It discusses coordination of a supply chain constituted by a loss neutral supplier and a loss averse retailer, where the retailer is faced with shortage of funds and implements promotion efforts, on the assumption that the retailer cannot get access to bank financing. Based on the framework of prospect theory, an expectation-based loss aversion utility model is constructed, upon which the retailer’s ordering and promotion strategies are characterized under different initial fund statuses. What’s more, three sorts of coordination contracts are designed.

Key words: supply chain coordination; loss aversion; financial constraints; promotion