Model of supply chain consignment contract with revenue sharing under asymmetric information

Abstract

This paper examines supply chain contract with revenue sharing, where a manufacturer decides on the retail price and stocking quantity for his produce and retains ownership of the goods. For each item sold, the retailer deducts a percentage from the selling price and remits the balance to the manufacturer. Both the overall channel performance and the performance of individual firms depend critically on demand price elasticity and the retailer's share of channel cost are discussed under asymmetric information benchmarked with those under symmetric information. There are mainly two conclusions drawn by analysis. Firstly, compared with that of a centralized system, the channel profit loss increases with demand price elasticity and decreases with retailer's cost share, while the profit share extracted by the retailer decreases with price elasticity and increases with retailer's cost share. Secondly, the equilibrium retail price and stocking quantity as well as the total profit overall supply chain are lower under asymmetric information than those under symmetric information.