Contracting for Competitive Supply Chains under Network Externalities and Demand Uncertainty

Based on network externalities and demand uncertainty environment, supply chain competition model is built; we identify the valid mechanism for the alternative range of profit‐sharing contracts and also analyze the effect of product substitutability coefficient and network externalities on the alliance and profit‐sharing contract. The results show that the vertical alliance contributes profit improvement to both the manufacturer and the retailer when the impact of network externalities on the product substitutability is not strong. However, vertical alliance will be out of operation when the effect of network externalities on the product substitutability is strong.