Effects of Revenue-Sharing Contracts on the Profits of Competing Manufacturers and a Retailer

This study investigates the effect of revenue-sharing contracts in two competing manufacturers and one common retailer model under game theoretic settings. One manufacturer uses a revenue-sharing contract (RSC) and the competitor a wholesale price contract (WPC). We study whether the adoption of an RSC coordinates the supply chain of the RSC-adopting manufacturer and the retailer and how it affects two manufacturers’ profits under two game scenarios : two-stage and one-stage game. We analyze the effects of demand parameters which represent product characteristic, such as price sensitivity and product substitutability on supply chain members’ profits. We find that the RSC in the two-stage game does not coordinate the supply chain. Conversely, the RSC in the one-stage game coordinates the corresponding supply chain for some sets of demand parameters values, and that for others, the competing manufacturer experience greater profit increase than the RSC-adopting one.