Co‐Op Advertising in Dynamic Retail Oligopolies

Abstract

We study a supply chain in which a consumer goods manufacturer sells its product through a retailer. The retailer undertakes promotional expenditures, such as advertising, to increase sales and to compete against other retailer(s). The manufacturer supports the retailer's promotional expenditure through a cooperative advertising program by reimbursing a portion (called the subsidy rate) of the retailer's promotional expenditure.To determine the subsidy rate, we formulate a Stackelberg differential game between the manufacturer and the retailer, and a Nash differential subgame between the retailer and the competing retailer(s). We derive the optimal feedback promotional expenditures of the retailers and the optimal feedback subsidy rate of the manufacturer, and show how they are influenced by market parameters. An important finding is that the manufacturer should support its retailer only when a subsidy threshold is crossed. The impact of competition on this threshold is nonmonotone. Specifically, the manufacturer offers more support when its retailer competes with one other retailer but its support starts decreasing with the presence of additional retailers. In the case where the manufacturer sells through all retailers, we show under certain assumptions that it should support only one dominant retailer. We also describe how we can incorporate retail price competition into the model.

Cooperative Advertising in a Supply Chain with Horizontal Competition

“…There are some cooperative advertising works that focus on a "multiple-retailer" framework. For example, He et al [28,29] extended He et al [19] by considering the competing retailers, and their results showed that the manufacturer's support for its retailer is higher under competition than in its absence.…”

A Manufacturer-Retailer Supply Chain with Fuzzy Consumer Demand

“…Empirical data clearly show an increasing trend, e.g., from $15 billion which were spent for such programs in the United States of America in 2000 up to $50 billion in 2008 (cf. He et al 2012;Nagler 2006). However, Nagler's study reveals that manufacturers mostly set their participation rates to 50 % or 100 % instead of conducting an appropriate analysis on the optimum percentage.…”

Study on Complex Advertising and Price Competition Dual-Channel Supply Chain Models Considering the Overconfidence Manufacturer

“…Some scholars studied on cooperative advertising present dynamic models and differential games for long-term, multiperiod relationships between manufacturers and retailers (e.g., see [12][13][14]). Others focus on a static, single-period relationship involving cooperative advertising (e.g., see [15][16][17][18]).…”