Research On Coordination Contract In Forward Shareholding Supply Chain

In order to adapt to the growing market scale and the complex and changeable business environment and deal with the fierce competition within the same industry, more and more firms form Strategic Alliance in different ways. Among them, the equity Strategic Alliance formed between upstream firm and downstream firm in supply chain by having a little amount of shares is more common. However, after the minority shareholding among firms, the supply chain is essentially only a part partially integrated supply chain. Therefore, there is still room for improvement in the profits of such supply chains. According to the different shareholdings between the upstream and the downstream firms, the supply chains can be divided into three categories. The first one is the supply chain with the upstream firm’s shareholding in the downstream firm, the second one is the supply chain with the downstream firm’s shareholding in the upstream firm; and the third one is the supply chain with cross-shareholding between the upstream and the downstream firms. In this thesis, the supply chain with forward shareholding is taken as the research object to construct a supply chain mode composed by one upstream firm and one downstream firm, assuming that the upstream firm produces intermediate products and provides to the downstream firm, and the intermediate products are processed by the downstream firm and then sold in the market. This thesis focuses on the coordination contract design of forward shareholding supply chain. The premise of this research is that the upstream firm has had shares in downstream firm by some ways, such as the investment of fund, technology, equipment and even human resources, but the shareholding proportion is not enough to affect the other’s decision-making behavior. Namely, after shareholding, the upstream and downstream firms are still the main economic bodies with independent decision-making and their decision goal is still to maximize their own utility. Based on two dimensions of whether the market demand is random and who occupies the dominant position between upstream and downstream firms,the main contents of this paper have been divided into four parts. The two dimensions are respectively as follows: their best decision and coordination contract design when, based upon the deterministic and price sensitive demand, upstream and downstream firms are respectively in dominant position in decision-making; the best decision and coordination contract design when stochastic demand determines price randomly and upstream and downstream firms are respectively in dominant position in decision-making.Firstly, on the basis of the deterministic and price sensitive demand and the decision goal of maximizing the profits of upstream and downstream firms, two-stage Stackelberg game taking upstream firm as the leading member has been conducted. In the first stage, the wholesale price of intermediate products is determined by upstream firm; in the second stage, the amount of product order is determined by downstream firm. After the solution to the best decision of upstream and downstream firms by using backward induction, it can be found that forward shareholding is helpful to increase the overall profit of upstream and downstream firms and weakens the double marginalization in supply chain under the decentralized decision-making. However, after the solution to system maximum profit under centralized decision, it can be found through comparison that the maximum profit under centralized decision is still larger than the maximum profit under decentralized decision and it is necessary to introduce coordination mechanism into supply chain system. Studies have shown that the introduction of the combined contract of revenue sharing and linear transfer payment can raise the level of overall profit of upstream and downstream firms under decentralized decision to the maximum level of supply chain system under centralized decision. Meanwhile, upstream firm can adjust the wholesale price which is the growing part profit allocated randomly between upstream and downstream firms so as to achieve the perfect coordination of supply chain.Secondly, the dominant party taking downstream firm as the decision conducts the two-stage Stackelberg game similarly under the sensitive situation that demand determines price and takes the maximum profit of upstream and downstream firms as the decision goal. In the first stage, the proportion of profit sharing of sales revenue is determined by upstream firm; in the second stage, the product output and the sales price of intermediate product is determined by upstream firm. After the solution to the best decision of upstream and downstream firms through backward induction, it can be found that, contrary to the first case, the overall profit of upstream and downstream firms have no relation with shareholding proportion of forward shareholding and the double marginalization in supply chain still exists. Studies have shown that when upstream and downstream firms share the production cost, the perfect coordination of supply chain can be achieved by the introduction of linear transfer payment contract.Thirdly, the two-stage Stackelberg game taking upstream firm as the dominant party has been conducted under the situation that demand randomly determines price and takes the expected maximum profit of upstream and downstream firms as the decision goal. In the first stage, the wholesale price of intermediate products is determined by upstream firm; in the second stage, the order amount of intermediate products is determined by downstream firm. After the solution to the best decision of upstream and downstream firms by backward induction, it can be found that similar to the case of forward shareholding supply chain taking upstream firm as the dominant party under the sensitive situation that demand determines price(namely, the first case), forward shareholding is helpful to increase the system output of supply chain, but cannot reach the level under centralized decision. Studies have shown that the perfect coordination of supply chain can be achieved if the mixed strategy of repurchase contract and sales subsidies are introduced.Finally, the two-stage Stackelberg game taking downstream firm as the dominant party has been conducted under the situation that demand randomly determines price and takes the expected maximum profit of upstream and downstream firms as the decision goal. In the first stage, the procurement price of intermediate products is determined by the downstream firm; in the second stage, the product output of intermediate products is determined by the downstream firm. Similarly by means of backward induction to get the solution to the best decision of upstream and downstream firms, it can be found that, similar to the first case, when downstream firm occupies the dominant position, forward shareholding is not conducive to weaken the double marginalization in supply chain. Studies have shown that while the downstream firm implements price subsidy contract to upstream firm, the perfect coordination of supply chain can be achieved if the upstream firm implements sales subsidy policy to the downstream firm,.Aiming at the economic phenomenon of forward shareholding(upstream firm’s shareholding is in the downstream firm) in supply chain and taking the four situations above into consideration, the design of coordination contract of supply chain has been studied in this thesis. Therefore, the research findings in this thesis can directly provides the scientific theoretical guidance for the node firms in forward shareholding when they coordinate the operational decision; besides, the results of this research also have some reference significance to the coordination contract design of the supply chain with backward shareholding or cross-shareholding.