Optimal Revenue-Sharing Contracts in Supply Chains under Market Uncertainty: An Risk-Sharing Aspect

Optimal Revenue-Sharing Contracts in Supply Chains under Market Uncertainty: An Risk-Sharing Aspect

This study explores the performance of revenue-sharing contracts under explicit consideration of risk-averse members of the supply chain. Our model centers on the risk-sharing aspects of supply chain coordination with revenue-sharing contracts. The results in this study show that the revenue-sharing contracts can coordinate the supply only if the contract is complementary with a particular percentage of revenue, which depends on the degrees of risk- aversion of the retailer and the supplier, with a wholesale price as set by Cachon and Lariviere (2005). It is also shown that the revenue-sharing contracts may emerge naturally with explicit consideration of risk in objective function of the supply chain members.