Analyzing Revenue Sharing and Buyback Contracts: An Experimental Study

This paper considers a standard newsvendor problem in a two-echelon supply chain setup. We use an experimental approach to investigate the deviation of decision makers from choosing optimal values in the context of supply chain contracts. Literature suggests that the coordinating contracts, such as revenue sharing or buyback contracts, do not necessarily improve the performance. Approaches to improve the existing revenue sharing and buyback contracts are examined in this paper. A rational supplier, who is likely to commit decision errors, sets the contract parameters to a retailer. These approaches are observed in a laboratory setting where human subjects are used to verify the experimental studies. The results show that the revenue sharing contracts, with appropriate feedback, can reduce the demand-chasing characteristic, generally seen in decision makers. This paper also discusses limitations and provides suggestions to future research