Channel Performance Under Consignment Contract with Revenue Sharing

Abstract

Under a consignment contract with revenue sharing, a supplier decides on the retail price and delivery quantity for his product, and retains ownership of the goods; for each item sold, the retailer deducts a percentage from the selling price and remits the balance to the supplier. In this paper we show that, under such a contract, both the overall channel performance and the performance of individual firms depend critically on demand price elasticity and on the retailer's share of channel cost. In particular, the (expected) channel profit loss, compared with that of a centralized system, increases with demand price elasticity and decreases with retailer's cost share, while the profit share extracted by the retailer decreases with price elasticity and increases with retailer's cost share. With an iso-price-elastic demand model, we show that the channel profit loss cannot exceed 26.4%, and that the retailer's profit share cannot be below 50%. When price elasticity is low, or when the retailer's cost share approaches 100%, or both, the retailer can extract nearly all the channel profit that is almost equal to the centralized channel profit.consignment sales, revenue sharing, supply chain management

Consignment contract for mobile apps between a single retailer and competitive developers with different risk attitudes

“…Most research on consignment contracts has focused on a channel structure consisting of a single supplier and a single retailer (Wang et al, 2004;Li et al, 2009;Ru and Wang, 2010;Jiang, 2012). Only a few papers have studied the effect of competition among suppliers (Wang, 2006;Adida and Ratisoontorn, 2011), as we do here.…”

“…Many platform distributers propose consignment contracts to app developers, based on a revenue sharing policy (Wang et al, 2004;Zhang et al, 2010;Gans, 2012;Jiang, 2012). In this type of contract, the developer continues to own the app and typically bears sole responsibility for determining its selling price.…”

“…This type of game is known as a Stackelberg model (see, e.g., Osborne and Rubinstein, 1994), and it assumes perfect information, specifically in this model, knowledge of the developers' risk attitudes and of the demand function. In practice, such an assumption holds, for example, when the supply chain parties have previously concluded contracts with one another, and when the parties are able to obtain information on demand from public media (see, for example, Gan et al, 2004, Wei and Choi, 2010, Wang et al, 2004, Xie et al, 2011.…”

A Literature Review on Supply Chain Contracts Selection and Coordination under Competing Multi Manufacturers

“…Dana and Spier (2001) analyzed revenue sharing contract under the perfect competition of retail market. Wang et al (2004)considered the external demand related with price, the revenue sharing contract is discussed, and the different assumptions on two kinds of demand price have carried on the contrastive analysis. But the revenue sharing contract are used such a premise: supply chain revenue from all the retailers, the supply chain revenue is observed for members, researched by Krishnan et al (2004).…”

Coordination Contracts for Two-Echelon Supply Chain with Price-and-Carbon-Emission Dependent Demand

“…Wang et al (2004) constructed a two-stage sales model, and applied the revenue sharing contract to coordinate the profit of two parties [6]. Raju and Zhang (2005) considered two-echelon supply chain model with a leading retailer, and studied how the parties collaborate for more benefit in the supply chain [7].…”