Revenue sharing contracts are prevalent especially in the retailer industry and franchising businesses. An implicit assumption of a classical revenue-sharing contract is that the retailer always reports the actual sales figure. However, instances of its violations are abundant in the market. Possession of private information about the market demand in a supply chain provides the retailer the adequate scope to deflate reported sales, which then translate to the transfer of lower than the contracted revenue share to his retailer. In this thesis, we design strategies for supplier firms to mitigate this problem of the retailer’s under-reporting of sales to prevent revenue loss while aiming for social welfare maximization.

Keywords: Revenue sharing contract, dishonest retailer, probabilistic audit, risk-aversion, feedback system