| With the rapid development of global economy, science and technology, and complicated and changeable market competition environment, the competition among individual enterprises has gradually evolved into the competition between supply chains.And enterprises in this competitive environment must build a relationship of close and harmony with his vertical partner to deal with the complex and changeable market environment, thus to improve the competitiveness of the supply chain. But how to achieve a long-term close relationship with his partner, the nature is performance improvement. However, the existing literature with contract improves the performance of the whole supply chain, but does not ensure that all members’ performance is improved at the same time, and also can’t guarantee performance improved in chain-to-chain competition, especially when the manufacturer’s production exhibits diseconomies of scale or retailer avoids demand risk. This paper will apply non-cooperative theory to explore how the vertical contract realize the win-win condition of the upstream and downstream in chain-to-chain competition that comprised of two manufacturers and two exclusive retailers. The manufacturers may exhibit diseconomies of scale, and the retailers are may risk-averse. What is more, this paper will identify the characteristics of game equilibriums of contract, and analyze the effect of scale diseconomies, risk aversion and market competition, etc. on the game equilibriums of contracts. All these results will provide theoretical direction and practical reference value for scale diseconomies firms and risk-averse firms in chain-chain competition.Firstly, based on chain-to-chain quantity or price competition model and the manufacturers’ scale diseconomies, with the benchmarking of wholesale price contract or centralized structure, this paper will not only identify the win-win mechanism for manufacturers and retailers by adopting quantity discount, vertical alliance with profit sharing and two-part tariff, but also explore the evolution path and dominant equilibriums of contracts. What is more, this paper will analyze the impact of horizontal competition and scale diseconomies on the design of vertical contract. The results show that all the complex contract, such as quantity discount, vertical alliance with profit sharing and two-part tariff can realize the win-win outcome for manufacturers andretailers no matter what the competitor adopts quantity discount, or profit sharing or two-part tariff. And the manufacturers get performance improvement by setting higher fixed tariff to his retailer with the benchmarking of centralized system. It is noteworthy that, if the manufacturers exhibit weakly or no diseconomies of scale, and the competition between two supply chains is relatively fierce, the best choice for manufacturers and retailers is to use the wholesale price contract.Secondly, based on chain-to-chain price competition model under demand uncertainty and vertical price restraints, this paper will analyze the performance of supply chain under wholesale price contract and retailer’s fixed markup contract respectively. Then, this paper will identify the dominant game equilibriums of fixed markup contract from the aspect of performance improvement of both manufacturer and retailer, and the aspect of performance improvement of whole supply chain. What’s more, we will study the impact of demand risk, market size, market share, price competition, demand forecast ability and markup ratio on the game equilibriums. The results show that: when price competition between two competing supply chains is weak relatively and market share is big relatively, retailer’s fixed markup will improve the whole supply chain’s performance and produce dominant equilibrium and Bayesian equilibrium for the whole supply chain; what is more, if the markup ratio is relatively modest and demand risk is not very high, or the markup ratio is big relatively and demand risk is relatively modest at the same time, retailer’s fixed markup will realize dominant equilibrium and Bayesian equilibrium for both manufacturer and retailer.At last, this paper will develop a chain-to-chain price competition model which is defined by two risk-neutral manufacturers and two-exclusive risk-averse retailers under demand uncertainty. With the benchmarking of wholesale price contract, this paper will not only identify the characters of game equilibriums and the limitation of two-part tariff and revenue sharing contract respectively from the aspect of the manufacturer’s and retailer’s performance improvement, but also will investigate respectively the effect of demand risk, the coefficient of the retailers’ risk aversion, and price competition on the choice of two-part tariffs and revenue sharing contract. The results show that the adoption of the two-part tariff does not depend on the demand risk directly, while the revenue sharing contract depends on the demand risk and price competition. What is more, when the price competition is relatively weak, two-part tariffs will realize the win-win outcome of manufacturers and retailers by adjusting the fixed fee, whichcontributes it to be a dominant equilibrium. Also, when price competition is weak or moderate relatively, and demand risk is small relatively, revenue sharing contract is a dominant equilibriums for both manufacturers and retailers, because it can realize the win-win outcome for manufacturers and retailers by setting a proper revenue sharing rate.In a word, all the results not only fully expand the work of McGuire & Staelin[7] et al., but also fill the gaps of vertical contract choice and design in competing supply chains in theory. What is more, these results provides the path and method for enterprises whose production exhibits scale diseconomies or enterprises that avoids demand risk to realize long-term cooperation and win-win outcome with his partner in practice. So all the work we have done provides strong practical value and theoretical basis for companies.
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