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The question of why customers lacked the latest movies from Blockbuster was a ‘chase-away customers’ strategy. Other movie-renting companies could come in easily and take up the customers. Blockbuster realized that the straight-forward wholesale price contract that they used was the cause of this and thought of devising a new contract with their retailers, the revenue-sharing contract. Under this contract, the retailer makes two payments to the supplier; a subsidized wholesale price per unit and the percentage of the revenues collected per unit (Cachon and Lariviere, 2005). Initially, due to high wholesale price per unit involved, the retailers could not be able to fill the stores with the required stock. Revenue sharing contract made this possible. This contract worked very well in coordinating supply chain of many companies including the Blockbuster’s rivals, Hollywood Inc. Nevertheless, the contract was not universally applicable since it had some flaws. Revenue sharing contract was costly compared to the traditional straight-forward wholesale price contract since it involved extra administration costs on the.............
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