A contract of purchase commitments on shared yields as a risk-sharing mechanism among fabless-foundry partnership

This paper develops a simple cooperative-game model for an alliance with a design house and a foundry in a semiconductor supply chain. In particular, we attempt to investigate an emerging observed type of contracts among fabless-foundry partnership. It is termed the purchase commitments on shared yields contract. We emphasize the risk-sharing aspect on the contract by explicit modeling risk into the fabless and foundry¿s objective functions. It is shown that the optimal share of yields depends on two parties¿ expectations on prices of the products, risk-aversion, and scales of production. The optimal share is not directly related to the both firms¿ marginal cost of production. That is, this contract is a cost-invariant contract. A Nash bargaining solution for the wholesale price under this contract between fabless and foundry is also proposed.