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This study establishes a market sharing mechanism for watershed ecological compensation between an upstream and downstream government based on the game-theoretical approach. It is found that, in this transboundary market sharing mechanism, the upstream government is encouraged to make more effort to protect the watershed ecosystem. As a result, a market-sharing compensation mechanism can bring Pareto improvements to all stakeholders. Furthermore, the influences of several key factors on the performance of the market sharing mechanism are investigated, which provides theoretical guidance for establishing and implementing such a mechanism in practice. HIGHLIGHTS Resolves compensation and allocation problems between upstream and downstream.; Makes full use of the ecological benefits from the watershed.; Proposes a market sharing ecological mechanism based on a cooperation game.; Analyzes the influencing factors of the market sharing mechanism.; It is conditional on the market sharing mechanism being beneficial.;