The contract manufacturer produces the component at unit production cost and sells it to the original manufacturer at unit price x, who then sells the component produced at a unit price p. the unit cost of production is assumed to be common information. Furthermore, assuming that the subcontractor can expend costly effort to influence demand, the initial subcontractor and the subcontractor must draft the contract parameters within which the subcontractor must decide that its level of effort e >_ 0. 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 effort cost parameter and the quadratic form implies that there is a marginal increase in effort cost. In the supplier effort model, although effort cannot be performed or well represented in a contract, there is a general assumption that once the supplier exerts the effort; manufacturers can observe it and act accordingly. This would be done by setting the selling price accordingly (Ehrlenspiel, Kiewert, Lindermann & Hundal,