Collaborative Product Development in Supply Chain under the Revenue-sharing Contract and the Cost-sharing Contract

Given that consumers desires continue to change, new product development is serving as a growth engine for companies and an essential strategy for sustainable growth, particularly in high-tech industries. However, the technical uncertainty associated with the supplier s development capability can be a significant obstacle to new product development projects. In this paper, we examine two contracts, the revenue-sharing contract and the cost-sharing contract, for new product development through upstream innovation under technology uncertainty. The results show that the supplier s development capability has a significant impact on the feasibility of the contract and the revenue-sharing contract helps to achieve higher new product quality levels and profits in the supply chain. Furthermore, we study the impact of the relationship between a manufacturer and a supplier on the performance of the new product development project. When the manufacturer and supplier work together to determine part of the revenue or expense, the manufacturer s profits decrease, but the benefits of the new product s quality and supply chain are improved, compared to the unilateral relationship.