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Consignment Contracts with Revenue Sharing for a Capacitated Retailer and Multiple Manufacturers

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  • Yun Fong Lim

    (Lee Kong Chian School of Business, Singapore Management University, Singapore 178899)

  • Yunzeng Wang

    (School of Business Administration, University of California, Riverside, Riverside, California 92521)

  • Yue Wu

    (INSEAD, Singapore 138676)

Abstract

We consider a retailer with limited storage capacity selling n independent products. Each product is produced by a distinct manufacturer, who is offered a consignment contract with revenue sharing by the retailer. The retailer first sets a common revenue share for all products, and each manufacturer then determines the retail price and production quantity for his product. Under certain conditions on price elasticities and cost fractions, we find a unique optimal revenue share for all products. Surprisingly, it is optimal for the retailer not to charge any storage fee in many situations even if she is allowed to do so. Both the retailer’s and manufacturers’ profits first increase and then remain constant as the capacity increases, which implies that an optimal capacity exists. We also find that the decentralized system requires no larger storage space than the centralized system at the expense of channel profit. If products are complementary, as the degree of complementarity increases, the retailer will decrease her revenue share to encourage the manufacturers to lower their prices.

Suggested Citation

  • Yun Fong Lim & Yunzeng Wang & Yue Wu, 2015. "Consignment Contracts with Revenue Sharing for a Capacitated Retailer and Multiple Manufacturers," Manufacturing & Service Operations Management, INFORMS, vol. 17(4), pages 527-537, October.
  • Handle: RePEc:inm:ormsom:v:17:y:2015:i:4:p:527-537
    DOI: 10.1287/msom.2015.0543
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    13. Zheng, Qi & Zhou, Li & Fan, Tijun & Ieromonachou, Petros, 2019. "Joint procurement and pricing of fresh produce for multiple retailers with a quantity discount contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 16-36.

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