A Study on Revenue-sharing Contracts Considering Customer Regret Psychology

This paper considers a three-level supply chain consisting of a supplier, a retailer and consumers. Based on the rational expectation equilibrium hypothesis and backward induction, we first analyze the retailer's pricing and inventory decisions, and then discuss revenue-sharing contracts. Results show that, the retailer should adopt the quantity commitment policy to increase profits, and revenue-sharing contracts can increase the credibility of quantity commitment and coordinate the supply chain. However, different from traditional conclusions, the optimal wholesale price may not be necessarily lower than product costs. Moreover, a revenue-sharing contract is effective only when the ratio of bargaining power between the retailer and the supplier reaches a certain threshold. The cooperation willingness of the retailer within the effective interval can be divided into high, medium and low types. Numerical experiments show that the effective interval of a revenue-sharing contract expands with the increase of consumer regret for stockout and narrows with the increase of consumer regret for high prices.