Revenue sharing contract based on vertical alliance among competing manufacturers

Based on vertical alliance, we proposed quantity competition models by two competing manufacturers and one dominated retailer. Compared with wholesale price contract, we investigated the valid mechanism for vertical alliances formation and the range of revenue sharing contract, and also we analyzed the impact of product competition and price risk on the choice of alliances and revenue sharing contract. The results suggest that the alliances are dependent on the intensity of product competition rather than price risk. However, the proportion range for retailer revenue sharing contract based on the alliances will increase with product competition intensity. Manufacturers will not discard the alliance voluntarily. Under a single vertical alliance, manufacturers and retailers will never drop out of the vertical alliance no matter how to change the intensity of competition. In other words, with more manufacturers coming into the competition, there must be one manufacturer and retailer can form a vertical alliance. However, under more vertical alliances, the manufacturers will never drop out of the vertical alliances no matter how to change the intensity of competition. However, with the increase of products competition intensity, the two vertical alliances will collapse to a single vertical alliance, and the collapse is only related to the retailer.