Many firms have enjoyed remarkable success using revenue-sharing contracts to improve supply chain performance. The video rental industry and its pioneering deal with movie studios is one such example. At the same time, other firms have struggled to make it work. What accounts for this...

We consider a manufacturer selling to a retailer with private demand information arising dynamically over an infinite time horizon. Under a backlogging model, we show that the manufacturer's optimal dynamic long-term contract takes a simple form: in the first period, based on her private demand...