The contract manufacturer produces the component at a unit production cost and sells it to the original manufacturer at a unit price x, who then sells the product at a unit price p. it is assumed that the unit production cost c is common information. Furthermore, assuming that the contract manufacturer can exert costly effort to influence demand, the original and the contract manufacturer must work out contractual parameters where the contract manufacturer must decide that its level of effort is e>_0 . Be aware of At this level of effort, the original manufacturer sets the selling price at ap>_ 0. We also assume that the cost of providing the level of effort e is ke2/4 where k is the cost of effort parameter e the quadratic form implies that there is a marginal increase in the cost of the effort level. In the supplier effort model, although the effort cannot be made or well represented in a contract, it is generally assumed that once the supplier exerts the effort; manufacturers can observe this and act accordingly. This would be done by setting the selling price accordingly (Ehrlenspiel, Kiewert, Lindermann & Hundal,