Channel coordination with manufacturer's revenue sharing contract

Abstract

This paper investigates supply chain coordination by adapting revenue sharing, where two upstream suppliers sell their substitutable products through a common retailer, who faces a stochastic price dependent demand. Each supplier could offer either a revenue sharing contract or a conventional wholesale price contract. We analyze the impact of retailer's share of channel cost and the substitution factor variability on decisions about optimal retail price and profit sharing of supply chain actors. Furthermore, to study the asymmetric power effect on channel performance, pricing games are modeled as two-stage and three-stage Bertrand Stackelberg games. It is observed that under both structures, when the manufacturers offer revenue sharing and the products are less substitutable, the supply chain performance improves significantly. Also, under any given substitution degree, sharing the total channel cost and consequently the risk among the firms leads to higher level of channel efficiency. © 2008 IEEE.