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Optimal Channel Choice under Stochastic Demand with Multiplicative and Additive Shocks

Based on the framework of Stackelberg game, we analyze and compare the optimal channel choices for the manufacturer and the retailer under consignment contract, when the demand is stochastic with uniformly distributed shock in multiplicative and additive forms respectively. We find that the price elasticity, range of demand fluctuation and the revenue sharing ratio affect the optimal channel choices for the manufacturer and the retailer differently under different forms of stochastic demand shocks.