We explore coordination issues of a two-echelon supply chain, consisting of a distributor and a retailer. The effect of revenue-sharing contract mechanism is examined under stock-time-price-sensitive demand rate. First, we investigate relationships between distributor and retailer under noncooperative distributor-Stackelberg games. Then we establish analytically that revenue sharing contact is able to coordinate the system and leads to the win-win outcomes. Finally, numerical examples are presented to compare results between the different models. 1. Introduction In the last few decades, extensive researches have been performed in the area of supply chain coordination. Numerous studies have offered various contractual forms of alliance to enhance joint performance of supply chain partners. This includes buybacks [1–3], quantity discount [4–6], revenue sharing [7, 8], two part tariffs [9], quantity flexibility contracts [10], and target-level sales rebates [11], to coordinate the decisions of supply chain partners. In this paper, we mainly consider a specific type of supply chain contract, namely, the revenue-sharing contract, which is adopted to coordinate a decentralized supply chain. The revenue-sharing contract mechanism can be identified by two parameters, namely, the wholesale price and percentage of the revenue-shared between the supply chain entities [12]. The performance of revenue sharing contract has been examined on standard newsvendor problem, and it has been observed that this coordination mechanism perfectly coordinates the system. Warren and Peers [13] have reported that after the adoption of revenue-sharing contract Blockbuster’s market share of video rental has increased from 24% in 1997 to 40% in 2002. Cachon and Lariviere [7] have provided an analysis of these contracts in a more general setting and demonstrate that revenue-sharing contracts coordinate the supply chain and arbitrarily allocate its profit to the two parties. Gerchak et al. [8] study the revenue sharing contracts in a decentralized Stackelberg setting in which the video rental channel and the studio make independent decisions. Wang et al. [14] have studied effect of revenue-sharing contract in a supply chain with fuzzy demand. Qin and Yang [15] have discussed effect of revenue sharing contract when supplier offers price discount to the retailer. Yao et al. [16] investigated a revenue-sharing contract for coordinating a supply chain comprising one manufacturer and two competing retailers under classic newsvendor problem model framework. Lu et al. [17] have used revenue
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