Competitive contract design in a retail supply chain under demand uncertainty

This article studies the design of contracts involving a single retailer and multiple competing manufacturers who supply substitutable products. We consider retail context in which with are negotiated relatively infrequently signed before demand environment is known, prices determined when known. develop Stackelberg model to study retailer's product selection pricing decisions manufacturers' contract decisions. show that it optimal for each manufacturer offer nonlinear so total payments production cost plus fixed additional cost. In case two this result allows us characterize an equilibrium choice maximizes chain profit, makes profit equal its marginal contribution chain, takes remaining profit. also find while increasing correlation always benefits retailer, only costs convex. extension found our continues hold reservation below threshold, but competition dynamics may change above threshold. Finally, we results remain true more than under submodularity property, holds quadratic linear demand.