Profit sharing and firm performance in the manufacturer-retailer dual-channel supply chain

With the rapid development of e-commerce and the adoption of dual channels, increasingly manufacturers and retailers are implementing profit sharing strategies in order to improve channel coordination and supply chain performance. In this study, we focus on the strategic role played by profit sharing in a manufacturer-retailer dual-channel supply chain. We use a game theory approach to investigate this issue. We compare the expected profits that each supply chain player receives in a traditional retail system with the profits that can be achieved in a profit-sharing dual-channel system. Our results show that both the manufacturer and the retailer always benefit from a dual-channel profit-sharing strategy because of the incremental profit gains generated by the dual-channel strategy. Furthermore, the Nash (Econometrica 18:155–162, 1950) bargaining model is utilized to implement profit sharing for the manufacturer and the retailer to achieve their channel coordination. Based on our results, optimal market strategies are derived and probable paths of future research are identified.