Three revenue-sharing variants: their significant performance differences under system-parameter uncertainties |
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Authors: | Y-Y Wang H-S Lau Z-S Hua |
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Institution: | 1.Center for Enterprise Innovation and Development, Soochow University,Suzhou,China;2.School of Business, University of Hong Kong,Pokfulam,Hong Kong;3.University of Science and Technology of China,Hefei,China |
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Abstract: | In the widely studied ‘revenue sharing’ (hereafter RS]) contract format, the manufacturer of a product not only charges the retailer a unit wholesale price w, but also requires the retailer to share part of the product's revenue (ie, the unit retail price p) with him. For a product with price-dependent demand, it is well known that if a dominant manufacturer knows the system parameters deterministically, then RS] gives him the perfect power of simultaneously coordinating the channel and allocating profit arbitrarily. Unfortunately, RS]'s power deteriorates as the manufacturer's knowledge of the system parameters becomes increasingly uncertain. This paper shows that this deterioration can be substantially reduced by using slightly modified versions of RS]; these modifications roughly amount to sharing a retailer's gross profit instead of revenue. In other words, this paper presents simple modifications to the classical RS], leading to contract formats that perform substantially better under system-parameter uncertainty. |
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