Handling of revenue sharing contracts within the scope of game theory

Abstract

One of the most important problems faced in supply chain management is the coordination between supply chain members. Supply chain contracts, such as buyback contract, quantity-flexibility contract, revenue sharing contract, etc., can be used for solving this problem. In revenue sharing contracts, the manufacturer applies a low wholesale price to the retailer and in return shares a portion of the retailer’s revenue. In this study, the revenue sharing contracts between the supplier and the retailer are handled as two-person non-constant sum games. There are two players in the game, supplier and retailer, and the main motivation of both is to increase their profitability. To this end, the supplier applies different wholesale prices, while the retailer responds by using different revenue sharing rates. In the study, profit functions of the supply chain members are calculated in the event of an income sharing agreement. These functions differ due to changes in supply chain parameters. The profits of the retailer and supplier corresponding to different wholesale prices and revenue sharing rates have been transferred to the two-person non-constant sum game revenue matrix. Then, the best strategies of the supplier and retailer are tried to be determined by the search of equilibrium point which is one of the solution methods that can be used to determine the best strategies in two-person non-constant sum games. The results showed that the solution approaches of game theory can be applied successfully in determining the best strategies that the parties can implement in revenue sharing contracts between the supplier and the retailer.