Abstract
This work considers cooperative advertising in a decentralised channel which involves a manufacturer, a distributor and a retailer. It uses Stackelberg differential game theory to model the direct involvement of both the distributor and the retailer in advertising, with the manufacturer supporting their advertising efforts through subsidy. The work uses Sethi's sales-advertising dynamics to model the market awareness share dynamics. It considers four channel structures and obtains the players' strategies and payoffs for all-four channel structures, and observes that the manufacturer should not totally subsidise any of the players' advertising effort. It further shows the manufacturer should not simultaneously support both players advertising efforts. However, if he must support both players, then a profit-sharing agreement on the channel payoffs must to be reached by the members of the supply chain to ensure that the manufacturer is not short-changed.
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