Co-op advertising models in manufacturer–retailer supply chains: A game theory approach

In the literature of cooperative (co-op) advertising, the focus of research is on a relationship in which a manufacturer is the leader and retailers are followers. This relationship implies the dominance of the manufacturer over retailers. Recent market structure reviews have shown a shift of retailing power from manufacturers to retailers. Retailers have equal or even greater power than a manufacturer when it comes to retailing. Based on this new market phenomenon, we intend to explore the role of vertical co-op advertising efficiency with respect to transactions between a manufacturer and a retailer through brand name investments, local advertising expenditures, and sharing rules of advertising expenses. Three co-op advertising models are discussed which are based on two noncooperative games and one cooperative game. In a leader–follower noncooperative game, the manufacturer is assumed to be a leader who first specifies the brand name investment and the co-op subsidization policy. The retailer, as a follower, then decides on the local advertising level. In a noncooperative simultaneous move game, the manufacturer and the retailer are assumed to act simultaneously and independently. In a cooperative game, the system profit is maximized for every Pareto efficient co-op advertising scheme, but not for any other schemes. All Pareto efficient co-op advertising schemes are associated with a single local advertising level and a single brand name investment level, but with variable sharing policies of advertising expenses. The best Pareto efficient advertising scheme is obtained taking members' risk attitudes into account. Utilizing the Nash bargaining model, we discuss two situations that (a) both members are risk averse, and (b) both members are risk neutral. Our results are consistent with the bargaining literature.     

A Game-Theoretic Analysis for Coordinating Cooperative Advertising in a Supply Chain

In this paper, we investigate the coordination of cooperative advertising decisions in a supply chain with one manufacturer and one retailer. The manufacturer and the retailer invest in national and local advertising, respectively. The manufacturer also agrees to share part of the total local-advertising costs with the retailer. The model is analyzed using game theory. We also compare the results of our analysis with similar results from the literature developed for cooperative advertising.     

Pricing and advertisement in a manufacturer–retailer supply chain

We use a game theoretical approach to study pricing and advertisement decisions in a manufacturer–retailer supply chain when price discounts are offered by both the manufacturer and retailer. When the manufacturer is the leader of the game, we obtained Stackelberg equilibrium with manufacturer’s local allowance, national brand name investment, manufacturer’s preferred price discount, retailer’s price discount, and local advertising expense. For the special case of two-stage equilibrium when the manufacturer’s price discount is exogenous, we found that the retailer is willing to increase local advertising expense if the manufacturer increases local advertising allowance and provides deeper price discount, or if the manufacturer decreases its brand name investment. When both the manufacturer and retailer have power, Nash equilibrium in a competition game is obtained. The comparison between the Nash equilibrium and Stackelberg equilibrium shows that the manufacturer always prefers Stackelberg equilibrium, but there is no definitive conclusion for the retailer. The bargaining power can be used to determine the profit sharing between the manufacturer and the retailer. Once the profit sharing is determined, we suggest a simple contract to help the manufacturer and retailer obtain their desired profit sharing.     

风险中性零售商的合作广告策略与订货模型

考虑了由一个制造商与一个零售商构成的单期二阶段供应链是否进行合作广告的博弈问题.面对市场需求的不确定性,零售商从制造商处订购报童类型产品销售给消费者,零售商具有风险中性的行为特征.通过不合作广告与合作广告两种情形,制造商与零售商进Stackelberg主从博弈,得到了均衡解,比较后发现,合作广告下的最优解及利润总是优于不合作广告下的最优解和利润,告诉了上下游企业采用合作广告的广告策略.最后,通过数值算例,给出了需求敏感系数对最优决策的影响,同时也论证了有关结论.     

Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount

We studied the coordination of cooperative advertisement in a manufacturer–retailer supply chain when the manufacturer offers price deductions to customers. With a price sensitive market, the expected demand with cooperative advertising and price deduction is demonstrated. When the manufacturer is a leader, we obtained the optimal national brand name investment, local advertisement and associated manufacturer’s allowance with any given price deduction. When the manufacturer offers more price deduction to customers, the retailer will increase local advertisement if the manufacturer provides the same portion of the local advertising allowance. We obtained the necessary and sufficient condition for the price deduction to ensure an increase of manufacturer’s profit, and a search procedure for determining such an optimal price deduction is provided as well. When the manufacturer and retailer are partners, we obtained the optimal national brand name investment and local advertisement. For any given price deduction, the total profit for the supply chain with cooperative scheme is always higher than that with the non-cooperative scheme. When price elasticity of demand is larger than one, the resulting closed form optimal price deduction with partnership is also obtained. To increase profits for both parties in a supply chain, we recommend that coordination in local and national cooperative advertising with a partnership relationship between manufacturer and retailer is the best solution. The bargaining results show how to share the profit gain between the manufacturer and the retailer, and determine the associated pricing and advertising policies for both parties.     

Supply chain coordination through integration of innovation effort and advertising support

This study integrates firms’ innovation and advertising decisions in a two-echelon supply chain, where a monopoly manufacturer sells products to ultimate consumers through an autonomous retailer. Considering that both innovation and advertising contribute to the product demand, we first investigate the optimal equilibriums of channel members under two different game structures: the non-cooperative and cooperative. In the non-cooperative structure, the manufacturer controls the innovation effort and wholesale price while the retailer controls the advertising rate and retail pricing. In the cooperative structure, the manufacturer agrees to share part of retailer’s advertising expenditure. We find that both the optimal operation and marketing decisions are sensitive to effects of innovation and advertising on demand as well as the manufacturer’s cost reduction coefficient due to innovation. Further, we find that the manufacturer always prefers cooperation. Meanwhile, only when the firms’ investments significantly contribute to the market mechanism, does the retailer have incentive to implement a cooperative program. In addition, we further propose a new two-way subsidy policy to coordinate channel members’ business functions.     

Cooperative advertising in a distribution channel with fairness concerns

Cooperative (co-op) advertising has been widely used in practice and employed as a strategy to improve the performance of a distribution channel. It is known from the existing models that co-op advertising could not achieve the channel coordination (i.e., maximize the total channel profit). In this paper, we consider a distribution channel consisting of a single manufacturer and a single retailer, and investigate the effect of the retailer’s fairness concerns. Applying the equilibrium analysis, we obtain the following results: (1) Channel coordination can be achieved if the retailer has fairness concerns and model parameters satisfy certain conditions. (2) Although both channel members become better off with co-op advertising if neither channel member has fairness concerns, we find situations where co-op advertising brings detrimental effects to the retailer if the retailer has fairness concerns. (3) The retailer’s fairness concerns may increase or decrease the equilibrium participation rate, the equilibrium advertising effort, and the equilibrium profit of the manufacturer and the whole channel. (4) We identify the conditions under which the effectiveness of co-op advertising can be improved or reduced by the retailer’s fairness concerns. As long as co-op advertising can bring extra profit to the manufacturer, the retailer’s fairness concerns could improve the effectiveness of the co-op advertising. (5) There exists a Pareto improvement for the profits of both the manufacturer and the retailer when a retailer without fairness concerns becomes fair-minded.     

广告分担、价格折扣与供应链的纵向合作广告

研究了生产商和零售商的纵向合作广告问题。分别在广告分担和价格折扣策略下，探讨了双方的均衡结果和利润。当生产商的边际利润较小时，生产商的最优决策是不采取任何一种策略。当生产商的边际利润达到一定范围时，广告分担策略是双方共同的最优选择。而无论在什么样的条件内，价格折扣策略都不会使双方同时满意。为了增加双方的收益，供应链成员应该在广告上集成决策。最后给出了系统集成的可行最优解的范围和Nash讨价还价解。     

Channel Coordination with Cooperative Advertising Considering Effect of Advertising on Willingness to Pay

In this paper, cooperative advertising in a manufacturer–retailer supply chain is studied. Advertising can enhance willingness to pay (WTP) of customers. This trade-off between the benefits of increasing WTP of customers and the advertising expenditure is a key to understanding the retailers optimal advertising decision. On the other hand, it is interesting to understand in which condition supporting the retailer for his advertising expenditure is beneficial for the manufacturer. In this study, in order to capture pricing and advertising strategies of the channel member, three non-cooperative games including Nash, Stackelberg retailer and Stackelberg manufacturer game-theoretic models are established. In spite of the related studies which restrict price in order to prevent negative demand, the proposed model allows channel members to increase their prices by enhancing WTP of customers. In this study, contrary to similar additive form demand functions applied in the co-op ad literature which limits their studies for cases that profit function is concave with respect to variables, optimal prices and advertising strategies are obtained for all the solution space. Surprisingly for the very high values of the advertising effect coefficient, a finite optimal advertising expenditure is achieved.     

供应链互补产品广告投入和捆绑销售联合决策研究

以一个制造商和一个零售商的供应链为研究对象,制造商生产两种互补产品,零售商可选择分开或捆绑两种销售策略。考虑互补品的负交叉弹性和广告外部性的特点,构建基于溢出效应的需求模型,运用博弈论的方法,求解零售商采取分开和捆绑两种销售策略时的均衡结果。通过比较不同销售策略下的均衡结果及利润关系,探讨在分散式和集中式两种情况下,零售商的最优广告投入和捆绑销售的联合决策问题。最后,通过数值算例,讨论产品互补程度和广告成本系数对决策结果的影响。研究结果表明,无论是在分散式还是集中式决策下,当产品互补程度较高或广告成本系数低时,分开销售是占优策略而广告费用较高;当产品互补程度较低且广告成本系数高时,捆绑销售是占优策略且广告费用较低。