The Revenue Share Allocation Decision for the Retailer under Consignment Contract with Revenue Sharing and Asymmetry of Manufacturing Cost

Abstract

In a two-echelon supply chain under consignment contract with revenue sharing, firstly, the manufacturer reports his manufacturing cost to the retailer; secondly, for each item sold, the retailer deducts a percentage from the selling price and remits the balance to the supplier according to the manufacturer’s manufacturing cost reported; thirdly, the supplier decides on the retail price and delivery quantity for his product, and retains ownership of the goods. To maximize her own profit, the manufacturer will misreport his manufacturing cost for asymmetric information. In this paper, we show that there is a unique solution in equilibrium. Those elegant analytical results allowes us to know the revenue share allocation decision is determined by two system parameters-the retailer’s cost share and the demand price–elasticity index. In our research, we know how the retailer’s revenue share changes with system parameters.