Reference no: EM13872232

Question:

Instead of the buy-back contract, think of a contract wherein the retailer agrees to order more from the manufacturer if the manufacturer reduces the price of the product. To compensate for the price reduction, the retailer agrees to share a portion of his revenue with the manufacturer. This is called the revenue-sharing contract. Discuss the potential advantages and disadvantages of such a contract to the manufacturer and the retailer.

Instead of the pay-back contract, think of a contract wherein the manufacturer agrees to produce more if the retailer agrees to pay a portion of the manufacturer's production cost. To compensate for this additional cost to the retailer, the manufacturer agrees to lower the price of the product. This is called the cost-sharing contract. Discuss the potential advantages and disadvantages of such a contract to the manufacturer and the retailer.