Does anyone know of any real-world examples in which supply chain contracts, of the type introduced by Pasternack (1985) and reviewed by Cachon (2003), are actually used in practice? I'm talking about contracts formulated as Stackelberg games, with a transfer payment between the two players, and expected profit functions that are optimized to find the Nash equilibrium for both players.

The only such case study that I know of is this Interfaces article about McGriff tire treading company. But I'm curious to find out about either other published case studies or anecdotal knowledge.

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    $\begingroup$ I like this question quite a bit. I certainly hope someone provides some good examples, but I certainly have none. I'd like to see our community do one of two things when they publish research on using OR to improve supply chain operations: (1) identify industry partners who are using an idea or considering its use; or (2) admitting that the idea is not yet used in practice. $\endgroup$
    – alerera
    Jun 28, 2019 at 15:25
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    $\begingroup$ @alerera agreed. And supply chain contracts seem to me to be the most extreme example of a topic in which there is a ton of academic and virtually no applied work. $\endgroup$ Jun 28, 2019 at 16:52
  • $\begingroup$ Not sure if it fits @LarrySnyder610's requirements, but what about Blockbuster's revenue sharing contract? knowledge.wharton.upenn.edu/article/… $\endgroup$
    – Libra
    Oct 17, 2019 at 12:05
  • $\begingroup$ @Libra yes, definitely! Would you write it as an answer? $\endgroup$ Oct 17, 2019 at 16:03

2 Answers 2


Blockbuster's revenue-sharing contract might represent an example of an application. See for example here.


Examples of some of the conditions of supply contracts from Hi-Tech industry

  1. Buy back of x% of parts supplied if part becomes non-moving

  2. Buyer (assume buyers company being a cloud company who keeps pacing purchase orders for servers with manufacturers i.e. Tier-1 Supplier) being responsible for part inventory at Tier-1 supplier if Buyer stops placing orders for finished products with Tier-1 supplier or parts become obsolete. Contracts of buyer organization with Tier-2 organization to ensure purchase orders placed by Tier-1 organization are fulfilled by Tier-2 on time

  3. Charge back to Suppliers by OEM for parts in case of Warranty returns/defects.

  • $\begingroup$ Good examples. Is there any evidence that companies like this use any optimization (of the Pasternack/Cachon type) to calibrate these contracts? $\endgroup$ Dec 26, 2019 at 23:20
  • $\begingroup$ On similar lines, A mining major evaluated the claim of a Tier OEM that the latest model of their Tire has y% more life but price of the same was some x% higher. Here the mining major, evaluated the current life of the older version of the tires installed in the mining fleet and price they were paying to the tire company to award the contact for the new model of the tire. Does this help you to understand this? $\endgroup$
    – Lal
    Dec 27, 2019 at 9:35

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