Distributor Setting Sample Clauses

Distributor Setting. The distributor (principal/he) provides the movie and designs a contract to the theater (agent/she). We assume that a movie will play in two periods. Before the first period begins, the distributor will provide a revenue- sharing contract that includes the sharing ratio in the first period 𝜃 and the theater’s adjusted sharing ratio in the second period 𝛼. Specifically, the theater will obtain 𝜃 portion of the box office revenue in the first period and 𝛼𝜃 portion in the second period. The distributor will also receive a wholesale price 𝑤 from the theater, which represents a patent or VPN. During the designing of the contract, the distributor is unaware of the real movie demand. The distributor is only aware that the probability of the movie being a hit is 𝜌 or the probability of the movie being a flop is 1 − 𝜌; if the movie is a hit or a flop, then the potential revenue per movie screening is 𝑅ℎ or ▇▇. Without losing the generality, we let 𝑅ℎ be equal to 1, and ▇▇ is between 0 and 1. At the end of the first period, the demand of the movie is realized. The distributor will determine whether the movie is a hit or a flop. The box office revenue will differ in the first and second period. If the potential revenue per movie screening is 𝑅ℎ in the first period, then the potential revenue per movie screening will be 𝑘𝑅ℎ in the second period. When the movie is a flop at the end of the first period, the theater will probably adopt promotional efforts to increase the revenue. The distributor will also be willing to share the promotion cost, thereby enabling the distributor to decide on a cost-sharing ratio 𝛾. Without losing generality, we normalize the cost of the distributor to 0.