More on the Revenue sharing Contract

By increasing the $$C_s = 125 - 80$$, by taking $80 down to $60, (so manufacturer will make less profit per item,but more item) retailers can increase the revenue.

Then, the retailer will return 15% of the sales to the manufacturer.

But what if you can take this further? what if they merge together to make one company? Tweaking the numbers, you can make the revenue increase by meargig the company.

NOTE: all this was on the environment of MTO(made to order), where retailer (buyer) will decide how much to order, then tell the manufacturer to make the quantity.

In these MTO contract cases, retailers actually have incentive to NOT sell the products with the contractors (sellers), because in buy - back case : you can return with cheap cost, and in revenue sharing case : you have to share the price with sale.

Case with MTS model : Made to sell (perspective of manufacturer)

In MTS case, manufacturer will produce(with the best prediction) and retailers will buy them. Just like the case of MTO there are Pay - back contract: Retailers will Pay - back the items that manufacturer over - made, so manufacturer has the incentive to produce more. This is an analogy of buy - back contract.

So in the case where $$C_e = 55 - 20$$, $$C_s = 80 - 55$$, if the retailers pay back per item, (suppose, $17 each,) $$C_e = 55 - 20 - 17$$, so Service level increases. This would happen if the best manufacturing level is lower than level retailers demand.

The following script will enumerate the best case in the

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