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Profit sharing contracts and quality improvements in competing supply chains

P. 622-635.

This paper contributes to the hold-up problem resolving, quality improvement in supply chains, and the contract theory. We aim to investigate the effects of competitive environment on manufacturer's incentive to change the quality of product and the efficiency of the profit sharing contracts. Our results show that the stronger competition motivates the quality improvement and under particular parameters profit sharing contract is an efficient mechanism of coordination within the supply chain.