Cooperative Advertising in a Supply Chain with Horizontal Competition

Cooperative advertising programs are usually provided by manufacturers to stimulate retailers investing more in local advertising to increase the sales of their products or services. While previous literature on cooperative advertising mainly focuses on a “single-manufacturer single-retailer” framework, the decision-making framework with “multiple-manufacturer single-retailer” becomes more realistic because of the increasing power of retailers as well as the increased competition among the manufacturers. In view of this, in this paper we investigate the cooperative advertising program in a “two-manufacturer single-retailer” supply chain in three different scenarios; that is, (i) each channel member makes decisions independently; (ii) the retailer is vertically integrated with one manufacturer; (iii) two manufacturers are horizontally integrated. Utilizing differential game theory, the open-loop equilibrium-advertising strategies of each channel member are obtained and compared. Also, we investigate the effects of competitive intensity on the firm’s profit in three different scenarios by using the numerical analysis

Cooperative Advertising in a Supply Chain with Horizontal Competition

Cooperative advertising programs are usually provided by manufacturers to stimulate retailers investing more in local advertising to increase the sales of their products or services. While previous literature on cooperative advertising mainly focuses on a "singlemanufacturer single-retailer" framework, the decision-making framework with "multiple-manufacturer single-retailer" becomes more realistic because of the increasing power of retailers as well as the increased competition among the manufacturers. In view of this, in this paper we investigate the cooperative advertising program in a "two-manufacturer single-retailer" supply chain in three different scenarios; that is, (i) each channel member makes decisions independently; (ii) the retailer is vertically integrated with one manufacturer; (iii) two manufacturers are horizontally integrated. Utilizing differential game theory, the open-loop equilibriumadvertising strategies of each channel member are obtained and compared. Also, we investigate the effects of competitive intensity on the firm's profit in three different scenarios by using the numerical analysis

Modeling subsidy transfer in cooperative advertising using Stackelberg game theory

Dynamic game theoretic model approach stands out as a choice tool for considering subsidy transfer in cooperative advertising. In spite of the benefits of static models they are not known to have been used to study subsidy transfer. This work studies cooperative advertising subsidy transfer in a three-level manufacturer-distributor-retailer supply channel using Stackelberg static game. The retailer is directly involved in local advertising, while the manufacturer indirectly participates in retail advertising by providing subsidy to the retailer through the distributor. The work models the demand function using the effect of advertising on demand, and models the payoff using a revenue-expenditure formula. It considers four channel structures, and obtains the optimal advertising effort, the optimal participation rates, and the payoffs for each scenario. The work observes that the payoffs are large with distributor’s intervention subsidy, but best with subsidy transfer. They are worst with non-provision and non-transfer of subsidy. Thus, the supply channel members should prioritize the distributor’s participation in retail advertising either through subsidy transfer or intervention