Abstract:A supply chain consisting of a supplier and a retailer is studied．The retailer faces stochastic customer demand and purchases from the supplier via either an option contract or a combined contract of forward and option．Under either scenario，a Stackelberg game is modeled respectively，and the optimal replenishment policy for the retailer and the optimal pricing strategy for the supplier are studied from the perspective of the supplier and the retailer respectively．The comparison results show that the supplier is always better off under the option contract and even under the combined contract，and that the supplier will set the price of the forward contract high enough to prevent the retailer from purchasing via the forward contract．Whether the retailer will be better off under the option contract is affected by the option exercise price and the salvage value of the product．