Local advertising externalities and cooperation in one manufacturer-two retailers channel

Dridi, Dhouha and Ben Youssef, Slim (2015): Local advertising externalities and cooperation in one manufacturer-two retailers channel.

Abstract

In this paper, we consider a static model for advertising strategies and pricing decisions in supply chain with one monopolistic manufacturer and two duopolistic retailers. We assume an additive form of the consumer demand which is influenced by retail price and advertising. The manufacturer sets the wholesale price, invests in advertising (at national level) and offers cooperative advertising to boost the advertising expenditures of their retailers. The retailers set the retail price and invest in advertising (at local level). By means of game theory, we discuss three different relationships between the supply chain members: two non cooperative games including the Stackelberg – Cournot and the Stackelberg – Collusion and one cooperative game. The comparison between the three models reveals that the advertising, the pricing, the consumer demand and the profits are affected by various relationships. Furthermore, under the cooperation situation, we propose a channel coordination mechanism through a manufacturer’s participation rate in retailers’ local advertising cost and wholesale price by using utility function.

• Item Type: MPRA Paper
• Language: English
• Keywords: Game theory, supply chain, cooperative advertising, pricing, retail competition, retail coalition, coordination mechanism.
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory; D - Microeconomics > D6 - Welfare Economics; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising

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