Impact of revenue sharing contracts on retailers' shelf space allocation

The retailer's shelf-space-allocation decision affects not only the retailer's profitability but also the supplier's. This paper studies channel coordination through revenue sharing (RS) contracts between a common supplier and two competing retailers in a two-echelon supply chain. The supplier, acting as a leader, grants the franchise to two retailers facing shelf-space-dependent demand. The supplier influences retailers' decisions by charging portions of the revenue in exchange for the reduction in wholesale price. To maximize their profitability, the two competing retailers determine the order quantities under the given contract terms. We then investigate how the partners make decisions under the RS contracts and provide the condition under which both retailers stay in competition. Lastly we explore when the supply chain could reach the efficiency as in a centralized one.