Using revenue sharing to create win-win in the video rental supply chain

Recent developments in video rental supply chains seem to indicate that revenue sharing contracts are beneficial to all parties involved in the industry. This paper illustrates a theoretical underpinning of the observed practice. A video rental supply chain is modelled to study pricing and replenishment decision making by the two autonomous firms in the chain, namely a movie studio producing the tapes and a video rental shop renting the tapes to customers. In the model the movie studio is to set the price for selling the tapes to the video rental store and the video rental shop must decide the number of copies of the new movie videotape it should purchase. The paper illustrates that revenue sharing contract can optimize the chain and bring win-win situations to the players in the industry.