Revenue sharing contract with price dependent demand:

Abstract

We consider a revenue sharing contract in a supply chain, under price dependent demand. The demand is random and follows a multiplicative model. We show that the retail price that maximizes expected retailer profits, is higher than the price that would maximize profits if there was no demand uncertainty. We then show that if the wholesale price is sufficiently low, there is a positive revenue sharing fraction that the manufacturer would prefer. This preference is in comparison to not entering into a revenue sharing contract at all.