Title: Revenue sharing contract with two-way penalties

Authors: Nguyen Phuoc Thien; Huynh Trung Luong; Do Ba Khang; Vatcharapol Sukhotu

Addresses: School of Management, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani 12120, Thailand ' Industrial Systems Engineering Program, School of Engineering and Technology, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani 12120, Thailand ' Faculty of Economics and Commerce, Hoa Sen University, 93 Cao Thang Street, Ward 3, District 3, Ho Chi Minh City, Vietnam ' School of Management, Asian Institute of Technology, P.O. Box 4, Klong Luang, Pathumthani 12120, Thailand

Abstract: In the last few years, the benefits of revenue-sharing mechanisms in supply chain coordination have attracted many practitioners and academia. However, application of penalty clause in revenue sharing contract has received less attention in the existing research works. In this research, a revenue sharing contract under the effects of two-way penalties is examined. In our model, the retailer will reserve a commitment level in advance and the manufacturer will then determine the allocated quantity which is the maximum supply quantity so as to maximise his own profit. It is found that due to asymmetric information in the examined supply chain, the manufacturer can find the best decision for his allocated quantity while the decision of the retailer on commitment level may not be optimal. The circumstances under which the manufacturer may be willing to share information about allocated quantity with the retailer to help reach the optimal decisions for both parties are also examined.

Keywords: supply chain management; SCM; revenue sharing contracts; information sharing; two-way penalties; commitment level; operational research; supply chain coordination; asymmetric information.

DOI: 10.1504/IJOR.2015.068744

International Journal of Operational Research, 2015 Vol.23 No.1, pp.63 - 93

Received: 23 Jan 2013
Accepted: 14 Jul 2013
Published online: 09 May 2015 *

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