Analysis of value chain coordination via revenue-sharing for improving the expected profits

Recently, the value chain coordination has been drawing much attention of both researchers and practitioners. One of the most prevalent approaches would be “revenue-sharing”, where a supplier providing products to a retailer works together with the retailer, and the two parties agree upon a contract so as to increase their respective profits. More specifically, the wholesale price of the supplier to the retailer is reduced to w, and in exchange, the retailer would return the (1 - θ) portion of its revenue to the supplier. The purpose of this paper is to analyze this revenue-sharing scheme by exploring the θ - w plane and the order quantity Q for improving the expected profits of both the supplier and the retailer. In particular, the region of (θ, w) is identified explicitly, in which the improvement for both would be assured. Furthermore, several new scenarios are proposed, along which the two parties may reach agreement comfortably.