Coordination within a Supply Chain with a Profit Sharing Contract

17 Pages Posted: 22 Mar 2016

See all articles by Igor Sloev

Igor Sloev

National Research University Higher School of Economics

Maria Nastych

Saint-Petersburg State University

Date Written: March 21, 2016

Abstract

We analyze an equilibrium choice of a product quality within a supply chain consisting of a manufacturer and a supplier. A quality of an intermediate good is private information of the supplier and determines the quality of a final product. The manufacturer holds all bargaining power and proposes a profit sharing contract to the supplier. We show that (i) such the contract may serve as the efficient mechanism of within-chain coordination in special cases and (ii) tougher market competition may lead to a higher profit of both supplier and manufacturer.

Keywords: supply chain, hold-up, profit sharing, quality improvement, competition

JEL Classification: D24, D43, L14

Suggested Citation

Sloev, Igor and Nastych, Maria, Coordination within a Supply Chain with a Profit Sharing Contract (March 21, 2016). Available at SSRN: https://ssrn.com/abstract=2748286 or http://dx.doi.org/10.2139/ssrn.2748286

Igor Sloev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Maria Nastych

Saint-Petersburg State University ( email )

58-60 Galernaya St.
Saint Petersburg, 190000
Russia

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