Towards integration: a revenue-sharing contract in a supply chain

This paper deals with the problem of a revenue-sharing contract adopted in a supply chain involving one supplier and one retailer with short life-cycle products. Under this contract the retailer can obtain the product from the supplier at a discounted price while as a compensation, the retailer must share his revenue with the supplier at a certain revenue-sharing rate, say r (0 ≤ r ≤ 1), where r represents the portion of the revenue to be kept by the retailer. We use a two-stage (Stackelberg) game to model the problem, where one player is the game's leader and the other the game's follower. Our ultimate objective is to maximize the overall supply chain's total profit and to show the effects of salvage revenue and the revenue-sharing rate on transfer cost rate, profit of the supplier and retailer and the overall supply chain's total profit while upholding the individual components' incentives. Our analysis exhibits that the case in which salvage revenue is not shared is preferred and the computational results to explore the effects of the revenue-sharing rate lead to many managerial insights regarding the leader of the game.