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Full Length Research
Paper
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Equilibrium
analysis and Pareto improvement of a supply chain under
revenue sharing contract with consignment and slotting
allowances
Jen-Ming Chen1*,
Hung-Liang Cheng1 and Mei-Chen Chien2
1Institute
of Industrial Management, National Central University 300,
Jhongda Road, Jhongli City, Taoyuan County, Taiwan, 32001,
R.O.C.
2Department
of Industrial and Technology Management, Vannung University
Jhongli City, Taoyuan County, Taiwan 32001, R.O.C.
*Corresponding
author. E-mail:
jmchen@mgt.ncu.edu.tw. Tel: +886-3-425-8192, Fax:
+886-3-425-8197.
Accepted 17 February, 2011 |
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Abstract |
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Revenue sharing contract with consignment is prevalent in internet
commerce, video rental, vending machine, and used-book
merchandising. Under such a contract, the study models the
decision-making of a supply channel with one manufacturer and
one retailer as a Stackelberg game. The retailer, acting as the
leader, offers the manufacturer a revenue sharing contract,
which specifies the percentage allocation of revenue between her
and the manufacturer. The manufacturer chooses a retail price as
a response. The study conducts equilibrium analysis for both the
centralized and decentralized channel settings with and without
cooperation. The study reveals that the profit loss due to
non-cooperative decentralization is significant, and it tends to
have a consistent bias that is setting higher retail price by
the manufacturer and higher revenue-sharing percentage by the
retailer. Notably, the loss is increasing in the price
elasticity of demand and decreasing in the retailer’s
cost-share. In other words, the cooperative decentralization
will generate more profit than that of the non-cooperative if
the retailer’s cost-share is small and/or the elasticity is
high. In addition, a profit-sharing scheme through slotting
allowance is proposed to achieve perfect coordination, which
leads to Pareto improvements among channel participants.
Key words:
Game theory, supply chain management, channel coordination,
revenue-sharing.
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