Supply chain coordination using revenue-dependent revenue sharing contracts
A typical single period revenue sharing contract specifies a priori a fixed fraction for the supply chain revenue to be shared among the supply chain players. Over the years, supply chains, especially in the movie industry, have adopted multi-period revenue sharing contracts that specify one fraction for each contract period. These revenue sharing contracts are of revenue-independent type such that the revenue sharing fractions are independent of the quantum of revenue generated. Motivated by the recent events in Bollywood – one of the popular arms of the Indian movie industry – in this paper we develop and analyze a game theoretic model for revenue-dependent revenue sharing contracts wherein the actual proportion in which the supply chain revenue is shared among the players depends on the quantum of revenue generated. Our aim is to understand why revenue-dependent revenue sharing contracts are (or not) preferred over revenue-independent contracts. We also examine if supply chains can be coordinated over multiple periods using both types of revenue sharing contracts. We build a two-period model characterizing supply chains in the movie industry and highlight the implications of the multi-period contractual setting for the supply chain coordinating revenue sharing contracts. We show that supply chains can be perfectly coordinated using both types of revenue sharing contracts; however, there exist situations in which revenue-dependent contracts outperform revenue-independent contracts. Using revenue-dependent revenue sharing contracts supply chains can be coordinated while providing positive surplus to the supply chain players that is otherwise not possible under certain situations in revenue-independent contracts. We also demonstrate how revenue-dependent contracts enhance supply chain coordination and highlight their significance when the drop in the revenue potential from one period to another is moderate.
Volume (Year): 41 (2013)
Issue (Month): 4 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Linh, Cao To & Hong, Yushin, 2009. "Channel coordination through a revenue sharing contract in a two-period newsboy problem," European Journal of Operational Research, Elsevier, vol. 198(3), pages 822-829, November.
- Vijay Mahajan & Eitan Muller & Roger A. Kerin, 1984. "Introduction Strategy for New Products with Positive and Negative Word-of-Mouth," Management Science, INFORMS, vol. 30(12), pages 1389-1404, December.
- Dana, James D, Jr & Spier, Kathryn E, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-45, September.
- Gérard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
- Giannoccaro, Ilaria & Pontrandolfo, Pierpaolo, 2009. "Negotiation of the revenue sharing contract: An agent-based systems approach," International Journal of Production Economics, Elsevier, vol. 122(2), pages 558-566, December.
- Kaya, Onur, 2011. "Outsourcing vs. in-house production: a comparison of supply chain contracts with effort dependent demand," Omega, Elsevier, vol. 39(2), pages 168-178, April.
- Scott E. Atkinson & Linda R. Stanley & John Tschirhart, 1988. "Revenue Sharing as an Incentive in an Agency Problem: An example from the National Football League," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 27-43, Spring.
- Sanjeev Swami & Martin L. Puterman & Charles B. Weinberg, 2001. "Play It Again, Sam? Optimal Replacement Policies for a Motion Picture Exhibitor," Manufacturing & Service Operations Management, INFORMS, vol. 3(4), pages 369-386, July.
- Øystein Foros & Kåre P. Hagen & Hans Jarle Kind, 2009. "Price-Dependent Profit Sharing as a Channel Coordination Device," Management Science, INFORMS, vol. 55(8), pages 1280-1291, August.
- Jehoshua Eliashberg & Mohanbir S. Sawhney, 1994. "Modeling Goes to Hollywood: Predicting Individual Differences in Movie Enjoyment," Management Science, INFORMS, vol. 40(9), pages 1151-1173, September.
- Ding, Ding & Chen, Jian, 2008. "Coordinating a three level supply chain with flexible return policies," Omega, Elsevier, vol. 36(5), pages 865-876, October.
- Hua, Zhongsheng & Zhang, Xuemei & Xu, Xiaoyan, 2011. "Product design strategies in a manufacturer-retailer distribution channel," Omega, Elsevier, vol. 39(1), pages 23-32, January.
- Yao, Z. & Leung, Stephen C.H. & Lai, K.K., 2008. "Manufacturer's revenue-sharing contract and retail competition," European Journal of Operational Research, Elsevier, vol. 186(2), pages 637-651, April.
- Lai, Guoming & Debo, Laurens G. & Sycara, Katia, 2009. "Sharing inventory risk in supply chain: The implication of financial constraint," Omega, Elsevier, vol. 37(4), pages 811-825, August.
- Mohanbir S. Sawhney & Jehoshua Eliashberg, 1996. "A Parsimonious Model for Forecasting Gross Box-Office Revenues of Motion Pictures," Marketing Science, INFORMS, vol. 15(2), pages 113-131.
- Li, Sijie & Hua, Zhongsheng, 2008. "A note on channel performance under consignment contract with revenue sharing," European Journal of Operational Research, Elsevier, vol. 184(2), pages 793-796, January.
- Rajiv Lal, 1990. "Improving Channel Coordination Through Franchising," Marketing Science, INFORMS, vol. 9(4), pages 299-318.
When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:41:y:2013:i:4:p:780-796. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.