Capacity sharing strategy with sustainable revenue-sharing contracts
Abstract
This paper develops a duopoly model to analyse capacity sharing strategy and the optimal revenue-sharing contract under a two-part tariff and examines the effects of capacity sharing, cost, and sharing charges in three scenarios. The paper uses the two-part tariff method and adds a more realistic assumption of incremental marginal costs to improve the research on capacity sharing strategies. The results show that capacity constraints affect the sustainable development of firms. A sustainable revenue-sharing contract can create a win-win situation for both firms and promote capacity sharing. Capacity sharing, cost, and the revenue-sharing rate have different impacts in different scenarios; the optimal revenue-sharing rate and fixed fee can be determined to maximise the profits of firms that share capacity. However, capacity sharing may not improve social welfare.
First published online 28 December 2021
Keyword : duopoly, capacity sharing strategy, sustainable revenue-sharing contracts, two-part tariff, win-win development
How to Cite
Chen, J., Shi, J., & Liu, J. (2022). Capacity sharing strategy with sustainable revenue-sharing contracts. Technological and Economic Development of Economy, 28(1), 76–100. https://doi.org/10.3846/tede.2021.16030
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Chen, Y., & Nie, P. (2014). Duopoly innovation under product externalities. Economic Research-Ekonomska Istraživanja, 27(1), 232–243. https://doi.org/10.1080/1331677X.2014.952092
Choi, K., & Lee, D. (2020). Do firms choose overcapacity or undercapacity in a vertical structure? Managerial and Decision Economics, 41(5), 839–847. https://doi.org/10.1002/mde.3141
Dussauge, P., Wassmer, U., & Planellas, M. (2010). How to manage alliances better than one at a time. Post-Print, 51(3), 77.
Dong, Q., & Barcena-Ruiz, J. (2021). Corporate social responsibility and partial privatisation of state holding corporations. Journal of Economics, 132(3), 223–250. https://doi.org/10.1007/s00712-020-00725-5
Fang, D., & Wang, J. (2020). Horizontal capacity sharing between asymmetric competitors. Omega, 97, 102109. https://doi.org/10.1016/j.omega.2019.102109
Feng, X., Moon, I., & Ryu, K. (2017). Warehouse capacity sharing via transshipment for an integrated two-echelon supply chain. Transportation Research Part E: Logistics and Transportation Review, 104, 17–35. https://doi.org/10.1016/j.tre.2017.04.014
Gorelick, D., Zeff, H., Hughes, J., Eskaf, S., & Characklis, G. W. (2019). Exploring treatment and capacity-sharing agreements between water utilities. Journal American Water Works Association, 111(9), 26–40. https://doi.org/10.1002/awwa.1359
González-Blanco, J., Vila-Alonso, M., & Guisado-González, M. (2019). Exploring the complementarity between foreign technology, embedded technology and increase of productive capacity. Technological and Economic Development of Economy, 25(1), 39–58. https://doi.org/10.3846/tede.2019.7600
Guo, L., & Wu, X. (2018). Capacity sharing between competitors. Management Science, 64(8), 3554–3573. https://doi.org/10.1287/mnsc.2017.2796
Hu, X., Caldentey, R., & Vulcano, G. (2013). Revenue sharing in airline alliances. Management Science, 59(5), 1177–1195. https://doi.org/10.1287/mnsc.1120.1591
Ignatius, J., Tan, T. S., Dhamotharan, L., & Goh, M. (2018). Deregulation control by mergers and acquisitions: A game theoretic analysis of the Chinese airline industry. Technological and Economic Development of Economy, 24(6), 2277–2294. https://doi.org/10.3846/20294913.2016.1266410
Jain, R., & Pal, R. (2012). Mixed duopoly, cross-ownership and partial privatization. Journal of Economics, 107, 45–70. https://doi.org/10.1007/s00712-011-0260-6
Li, L., & Zhang, R. (2015). Cooperation through capacity sharing between competing forwarders. Transportation Research, 75(1), 115–131. https://doi.org/10.1016/j.tre.2014.11.003
Liu, S., Hua, G., Cheng, T., & Dong, J. (2021). Unmanned vehicle distribution capacity sharing with demand surge under option contracts. Trans-portation Research Part E: Logistics and Transportation Review, 149, 102320. https://doi.org/10.1016/j.tre.2021.102320
Melo, S., Macedo, J., & Baptista, P. (2019). Capacity-sharing in logistics solutions: A new pathway towards sustainability. Transport Policy, 73, 143–151. https://doi.org/10.1016/j.tranpol.2018.07.003
Moghaddam, M., & Nof, S. (2014). Combined demand and capacity sharing with best matching decisions in enterprise collaboration. International Journal of Production Economics, 148(2), 93–109. https://doi.org/10.1016/j.ijpe.2013.11.015
Nie, P.-Y., Wang, C., Chen, Y.-H., & Yang, Y.-C. (2018). Effects of switching costs on innovative investment. Technological and Economic Development of Economy, 24(3), 933–949. https://doi.org/10.3846/tede.2018.1430
Nunes, B., Santos, M., de Oliveira, B., Margi, C., Obraczka, K., & Turletti, T. (2014). Software-defined-networking-enabled capacity sharing in user-centric networks. IEEE Communications Magazine, 52(9), 28–36. https://doi.org/10.1109/MCOM.2014.6894449
Nakamura, Y. (2014). Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm. International Review of Economics & Finance, 34, 105–117. https://doi.org/10.1016/j.iref.2014.07.004
Qi, A., Ahn, H., & Sinha, A. (2019). To share or not to share? capacity reservation in a shared supplier. Production and Operations Management, 28(11), 2823–2840. https://doi.org/10.1111/poms.13081
Qin, J., Wang, K., Wang, Z., & Xia, L. (2020). Revenue sharing contracts for horizontal capacity sharing under competition. Annals of Operations Research, 291, 731–760. https://doi.org/10.1007/s10479-018-3005-x
Padilla Tinoco, S. V., Creemers, S., & Boute, R. N. (2017). Collaborative shipping under different cost-sharing agreements. European Journal of Operational Research, 263(3), 827–837. https://doi.org/10.1016/j.ejor.2017.05.013
Roels, G., & Tang, C. (2016). Win-win capacity allocation contracts in coproduction and codistribution alliances. Management Science, 63(3), 861–881. https://doi.org/10.1287/mnsc.2015.2358
Seok, H., & Nof, S. (2014). Dynamic coalition reformation for adaptive demand and capacity sharing. International Journal of Production Eco-nomics, 147, 136–146. https://doi.org/10.1016/j.ijpe.2013.09.003
Shao, X. (2020). Capacity sharing: The impacts of agreement and contracting timing. Journal of the Operational Research Society, 72(10), 2256–2273. https://doi.org/10.1080/01605682.2020.1779623
Silva, H., Soares, A., Bettoni, A., Francesco, A., & Albertario, S. (2019). A digital platform architecture to support multi-dimensional surplus ca-pacity sharing. In L. M. Camarinha-Matos, H. Afsarmanesh, & D. Antonelli (Eds.), IFIP Advances in information and communication technol-ogy: Vol. 568. Collaborative networks and digital transformation (pp. 323–334). https://doi.org/10.1007/978-3-030-28464-028
Sun, L., Qiu, J., Han, X., Yin, X., & Dong, Z. (2020). Capacity and energy sharing platform with hybrid energy storage system: An example of hospitality industry. Applied Energy, 280, 115897. https://doi.org/10.1016/j.apenergy.2020.115897
Tao, A. Y., Wang, X. H., & Yang, B. Z. (2018). Duopoly models with a joint capacity constraint. Journal of Economics, 125(2), 159–172. https://doi.org/10.1007/s00712-018-0597-1
Tomaru, Y., Nakamura, Y., & Saito, M. (2011). Strategic managerial delegation in a mixed duopoly with capacity choice: partial delegation or full delegation. Manchester School, 79(4), 811–838. https://doi.org/10.1111/j.1467-9957.2010.02179.x
Ueda, M. (2019). Effect of information asymmetry in Cournot duopoly game with bounded rationality. Applied Mathematics and Computation, 362, 124535. https://doi.org/10.1016/j.amc.2019.06.049
Wei, L., & Zhang, J. (2021). Strategic substitutes or complements? The relationship between capacity sharing and postponement flexibility. Euro-pean Journal of Operational Research, 294(1), 138–148. https://doi.org/10.1016/j.ejor.2021.01.016
Wu, M., & Chang, W. (2007). A short-term capacity trading method for semiconductor fabs with partnership. Expert Systems with Applications, 33(2), 476–483. https://doi.org/10.1016/j.eswa.2006.05.012
Xie, L., & Han, H. (2020). Capacity sharing and capacity investment of environment-friendly manufacturing: Strategy selection and performance analysis. International Journal of Environmental Research and Public Health, 17(16), 5790. https://doi.org/10.3390/ijerph17165790
Yang, F., Shan, F., & Jin, M. (2017). Capacity investment under cost sharing contracts. International Journal of Production Economics, 191, 278–285. https://doi.org/10.1016/j.ijpe.2017.06.009
Yu, Y., Benjaafar, S., & Gerchak, Y. (2015). Capacity sharing and cost allocation among independent firms with congestion. Production and Op-erations Management, 24(8), 1285–1310. https://doi.org/10.1111/poms.12322
Zhang, A., Fu, X., & Yang, H. (2010). Revenue sharing with multiple airlines and airports. Transportation Research Part B: Methodological, 44(8–9), 944–959. https://doi.org/10.1016/j.trb.2010.02.001
Zhao, D., Xue, Y., Cao, C., & Han, H. (2019). Channel selection and pricing decisions considering three charging modes of production capacity sharing platform: A sustainable operations perspective. Sustainability, 11(21), 5913. https://doi.org/10.3390/su11215913
Zhao, D., Han, H., Shang J., & Hao, J. (2020). Decisions and coordination in a capacity sharing supply chain under fixed and quality-based trans-action fee strategies. Computers & Industrial Engineering, 150, 106841. https://doi.org/10.1016/j.cie.2020.106841
Zhao, D., & Han, H. (2020). Decisions and coordination in a capacity sharing supply chain considering production cost misreporting. Complexity, 2020, 1926035. https://doi.org/10.1155/2020/1926035
Cachon, G., & Lariviere, M. (2005). Supply chain coordination with revenue-sharing contracts: Strengths and limitations. Management Science, 51(1), 30–44. https://doi.org/10.1287/mnsc.1040.0215
Chen, J., Liu, J., & Qin, J. (2019). Corporate social responsibility and capacity selection. Transformations in Business & Economics, 18(3C), 530–545.
Chen, J., Sun, C., Liu, J., & Huo, Y. (2021a). The optimal level of corporate social responsibility based on the duopoly model. Managerial and Decision Economics, 42(1), 177–184. https://doi.org/10.1002/mde.3222
Chen, J., Xie, X., & Liu, J. (2020a). Capacity sharing with different oligopolistic competition and government regulation in a supply chain. Mana-gerial and Decision Economics, 41(1), 79–92. https://doi.org/10.1002/mde.3094
Chen, J., Wang, X., & Chu, Z. (2020b). Capacity sharing, product differentiation and welfare. Economic Research-Ekonomska Istrazivanja, 33(1), 107–123. https://doi.org/10.1080/1331677X.2019.1710234
Chen, J., Wang, X., & Liu, J. (2021b). Corporate social responsibility and capacity sharing in a duopoly model. Applied Economics Letters, 28(6), 512–517. https://doi.org/10.1080/13504851.2020.1761531
Chen, J., Wei, Z., Liu, J., & Zheng, X. (2021c). Technology sharing and competitiveness in a Stackelberg model. Journal of Competitiveness, 13(3), 5–20. https://doi.org/10.7441/joc.2021.03.01
Chen, Y., & Nie, P. (2014). Duopoly innovation under product externalities. Economic Research-Ekonomska Istraživanja, 27(1), 232–243. https://doi.org/10.1080/1331677X.2014.952092
Choi, K., & Lee, D. (2020). Do firms choose overcapacity or undercapacity in a vertical structure? Managerial and Decision Economics, 41(5), 839–847. https://doi.org/10.1002/mde.3141
Dussauge, P., Wassmer, U., & Planellas, M. (2010). How to manage alliances better than one at a time. Post-Print, 51(3), 77.
Dong, Q., & Barcena-Ruiz, J. (2021). Corporate social responsibility and partial privatisation of state holding corporations. Journal of Economics, 132(3), 223–250. https://doi.org/10.1007/s00712-020-00725-5
Fang, D., & Wang, J. (2020). Horizontal capacity sharing between asymmetric competitors. Omega, 97, 102109. https://doi.org/10.1016/j.omega.2019.102109
Feng, X., Moon, I., & Ryu, K. (2017). Warehouse capacity sharing via transshipment for an integrated two-echelon supply chain. Transportation Research Part E: Logistics and Transportation Review, 104, 17–35. https://doi.org/10.1016/j.tre.2017.04.014
Gorelick, D., Zeff, H., Hughes, J., Eskaf, S., & Characklis, G. W. (2019). Exploring treatment and capacity-sharing agreements between water utilities. Journal American Water Works Association, 111(9), 26–40. https://doi.org/10.1002/awwa.1359
González-Blanco, J., Vila-Alonso, M., & Guisado-González, M. (2019). Exploring the complementarity between foreign technology, embedded technology and increase of productive capacity. Technological and Economic Development of Economy, 25(1), 39–58. https://doi.org/10.3846/tede.2019.7600
Guo, L., & Wu, X. (2018). Capacity sharing between competitors. Management Science, 64(8), 3554–3573. https://doi.org/10.1287/mnsc.2017.2796
Hu, X., Caldentey, R., & Vulcano, G. (2013). Revenue sharing in airline alliances. Management Science, 59(5), 1177–1195. https://doi.org/10.1287/mnsc.1120.1591
Ignatius, J., Tan, T. S., Dhamotharan, L., & Goh, M. (2018). Deregulation control by mergers and acquisitions: A game theoretic analysis of the Chinese airline industry. Technological and Economic Development of Economy, 24(6), 2277–2294. https://doi.org/10.3846/20294913.2016.1266410
Jain, R., & Pal, R. (2012). Mixed duopoly, cross-ownership and partial privatization. Journal of Economics, 107, 45–70. https://doi.org/10.1007/s00712-011-0260-6
Li, L., & Zhang, R. (2015). Cooperation through capacity sharing between competing forwarders. Transportation Research, 75(1), 115–131. https://doi.org/10.1016/j.tre.2014.11.003
Liu, S., Hua, G., Cheng, T., & Dong, J. (2021). Unmanned vehicle distribution capacity sharing with demand surge under option contracts. Trans-portation Research Part E: Logistics and Transportation Review, 149, 102320. https://doi.org/10.1016/j.tre.2021.102320
Melo, S., Macedo, J., & Baptista, P. (2019). Capacity-sharing in logistics solutions: A new pathway towards sustainability. Transport Policy, 73, 143–151. https://doi.org/10.1016/j.tranpol.2018.07.003
Moghaddam, M., & Nof, S. (2014). Combined demand and capacity sharing with best matching decisions in enterprise collaboration. International Journal of Production Economics, 148(2), 93–109. https://doi.org/10.1016/j.ijpe.2013.11.015
Nie, P.-Y., Wang, C., Chen, Y.-H., & Yang, Y.-C. (2018). Effects of switching costs on innovative investment. Technological and Economic Development of Economy, 24(3), 933–949. https://doi.org/10.3846/tede.2018.1430
Nunes, B., Santos, M., de Oliveira, B., Margi, C., Obraczka, K., & Turletti, T. (2014). Software-defined-networking-enabled capacity sharing in user-centric networks. IEEE Communications Magazine, 52(9), 28–36. https://doi.org/10.1109/MCOM.2014.6894449
Nakamura, Y. (2014). Capacity choice in a duopoly with a consumer-friendly firm and an absolute profit-maximizing firm. International Review of Economics & Finance, 34, 105–117. https://doi.org/10.1016/j.iref.2014.07.004
Qi, A., Ahn, H., & Sinha, A. (2019). To share or not to share? capacity reservation in a shared supplier. Production and Operations Management, 28(11), 2823–2840. https://doi.org/10.1111/poms.13081
Qin, J., Wang, K., Wang, Z., & Xia, L. (2020). Revenue sharing contracts for horizontal capacity sharing under competition. Annals of Operations Research, 291, 731–760. https://doi.org/10.1007/s10479-018-3005-x
Padilla Tinoco, S. V., Creemers, S., & Boute, R. N. (2017). Collaborative shipping under different cost-sharing agreements. European Journal of Operational Research, 263(3), 827–837. https://doi.org/10.1016/j.ejor.2017.05.013
Roels, G., & Tang, C. (2016). Win-win capacity allocation contracts in coproduction and codistribution alliances. Management Science, 63(3), 861–881. https://doi.org/10.1287/mnsc.2015.2358
Seok, H., & Nof, S. (2014). Dynamic coalition reformation for adaptive demand and capacity sharing. International Journal of Production Eco-nomics, 147, 136–146. https://doi.org/10.1016/j.ijpe.2013.09.003
Shao, X. (2020). Capacity sharing: The impacts of agreement and contracting timing. Journal of the Operational Research Society, 72(10), 2256–2273. https://doi.org/10.1080/01605682.2020.1779623
Silva, H., Soares, A., Bettoni, A., Francesco, A., & Albertario, S. (2019). A digital platform architecture to support multi-dimensional surplus ca-pacity sharing. In L. M. Camarinha-Matos, H. Afsarmanesh, & D. Antonelli (Eds.), IFIP Advances in information and communication technol-ogy: Vol. 568. Collaborative networks and digital transformation (pp. 323–334). https://doi.org/10.1007/978-3-030-28464-028
Sun, L., Qiu, J., Han, X., Yin, X., & Dong, Z. (2020). Capacity and energy sharing platform with hybrid energy storage system: An example of hospitality industry. Applied Energy, 280, 115897. https://doi.org/10.1016/j.apenergy.2020.115897
Tao, A. Y., Wang, X. H., & Yang, B. Z. (2018). Duopoly models with a joint capacity constraint. Journal of Economics, 125(2), 159–172. https://doi.org/10.1007/s00712-018-0597-1
Tomaru, Y., Nakamura, Y., & Saito, M. (2011). Strategic managerial delegation in a mixed duopoly with capacity choice: partial delegation or full delegation. Manchester School, 79(4), 811–838. https://doi.org/10.1111/j.1467-9957.2010.02179.x
Ueda, M. (2019). Effect of information asymmetry in Cournot duopoly game with bounded rationality. Applied Mathematics and Computation, 362, 124535. https://doi.org/10.1016/j.amc.2019.06.049
Wei, L., & Zhang, J. (2021). Strategic substitutes or complements? The relationship between capacity sharing and postponement flexibility. Euro-pean Journal of Operational Research, 294(1), 138–148. https://doi.org/10.1016/j.ejor.2021.01.016
Wu, M., & Chang, W. (2007). A short-term capacity trading method for semiconductor fabs with partnership. Expert Systems with Applications, 33(2), 476–483. https://doi.org/10.1016/j.eswa.2006.05.012
Xie, L., & Han, H. (2020). Capacity sharing and capacity investment of environment-friendly manufacturing: Strategy selection and performance analysis. International Journal of Environmental Research and Public Health, 17(16), 5790. https://doi.org/10.3390/ijerph17165790
Yang, F., Shan, F., & Jin, M. (2017). Capacity investment under cost sharing contracts. International Journal of Production Economics, 191, 278–285. https://doi.org/10.1016/j.ijpe.2017.06.009
Yu, Y., Benjaafar, S., & Gerchak, Y. (2015). Capacity sharing and cost allocation among independent firms with congestion. Production and Op-erations Management, 24(8), 1285–1310. https://doi.org/10.1111/poms.12322
Zhang, A., Fu, X., & Yang, H. (2010). Revenue sharing with multiple airlines and airports. Transportation Research Part B: Methodological, 44(8–9), 944–959. https://doi.org/10.1016/j.trb.2010.02.001
Zhao, D., Xue, Y., Cao, C., & Han, H. (2019). Channel selection and pricing decisions considering three charging modes of production capacity sharing platform: A sustainable operations perspective. Sustainability, 11(21), 5913. https://doi.org/10.3390/su11215913
Zhao, D., Han, H., Shang J., & Hao, J. (2020). Decisions and coordination in a capacity sharing supply chain under fixed and quality-based trans-action fee strategies. Computers & Industrial Engineering, 150, 106841. https://doi.org/10.1016/j.cie.2020.106841
Zhao, D., & Han, H. (2020). Decisions and coordination in a capacity sharing supply chain considering production cost misreporting. Complexity, 2020, 1926035. https://doi.org/10.1155/2020/1926035