Based on chain-to-chain quantity competition and the manufacturers’scale diseconomies，we notonly identified the valid mechanism for vertical alliances formation and the alternative range of profit sharing contracts，but also analyzed the impact of product competition and scale diseconomies on the choice of alliances and profit sharing contract. The results show that the vertical alliance which contributes Pareto improvement to both the manufacturer and retailer is a dominant equilibrium when ( i) the quantity competition between the two supply chains is very weak and no matter whether the manufacturer’s production exhibits diseconomies of scale; ( ii) the quantity competition is fierce relatively and the manufacturer’s production exhibits high diseconomies of scale. What is more，the manufacturer’s proportion range of profit sharing will decrease with the increased intensity of quantity competition under this condition．However，the range of the manufacturer’s profit sharing proportion will increase with the increased intensity of scale diseconomies when the manufacturer exhibits a proper intensity of scale diseconomies and the retailer faces relatively fierce competition，but decrease when the manufacturer exhibits a higher intensity of scale diseconomies．