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Effect of the price-dependent revenue-sharing mechanism in a decentralized supply chain

Jen-Ming Chen () and Hung-Liang Cheng

Central European Journal of Operations Research, 2012, vol. 20, issue 2, 299-317

Abstract: This paper deals with an emerging research problem of coordinating a vertically separated channel under a price-dependent revenue-sharing mechanism, which has been used in eBay’s marketplace over two decades. We develop analytic models with bearing the following questions in mind: can the channel conducted by such a mechanism operate effectively and efficiently? Can it outperform the prevalent wholesale-price-only arrangement or the price-independent revenue sharing practice? If not, does it persist in certain decision bias that leads to a lower profit and channel inefficiency? To investigate these questions, we model the decision-making of the two firms in the supply chain as a Stackelberg game and carry out equilibrium analysis. Our analysis shows that the price-dependent R-S model does not outperform the price-independent, and only performs better than the wholesale-price-only mechanism in certain conditions, e.g., a higher retail share of channel-wide cost and/or a lower price-sensitivity coefficient of R-S function. Our findings suggest that it may be unworthy of adopting such a more complicated, price-dependent mechanism from a channel coordination perspective. Copyright Springer-Verlag 2012

Keywords: Channel coordination; Revenue-sharing; Consignment; Wholesale-price-only; Game theory (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s10100-010-0182-3

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Central European Journal of Operations Research is currently edited by Ulrike Leopold-Wildburger

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