Cooperative advertising, game theory and manufacturer-retailer supply chains

Susan X. Li, Zhimin Huang, Joe Zhu, Patrick Y.K. Chau

Research output: Journal PublicationArticlepeer-review

182 Citations (Scopus)

Abstract

Cooperative (co-op) advertising plays a significant role in marketing programs in conventional supply chains and makes up the majority of promotional budgets in many product lines for both manufacturers and retailers. We develop three strategic models for determining equilibrium marketing and investment effort levels for a manufacturer and a retailer in a two-member supply chain. Especially, we address the impact of brand name investments, local advertising, and sharing policy on co-op advertising programs in these models. The first model offers a formal normative approach for analyzing the traditional co-op advertising program where the manufacturer is the leader and the retailer is a follower. The second model provides a further analysis on this manufacturer-dominated relationship. The third model incorporates the recent market trend of retailing power shifts from manufacturers to retailers to analyze efficiencies of co-op advertising programs. We examine the effect of supply chain on the differences in profits resulting from following coordinated strategies as opposed to leader-follower strategies. A cooperative bargaining approach is utilized for determine the best co-op advertising scheme for achieving full coordination in the supply chain.

Original languageEnglish
Pages (from-to)347-357
Number of pages11
JournalOmega
Volume30
Issue number5
DOIs
Publication statusPublished - Oct 2002
Externally publishedYes

Keywords

  • Bargaining model
  • Co-op advertising
  • Leader-follower relationship
  • Pareto efficiencies
  • Supply chains

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research
  • Information Systems and Management

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