Co-op advertising in a dynamic supply chain when supply is disrupted

Abstract

This paper studies a dynamic cooperative advertising under supply disruptions. Cooperative (Co-op) advertising is a widely used marketing tool which affects advertising effort policy and advertising subsidy policy throughout the supply chain. First, the manufacturer announces the participation rate of cooperative advertising which specifies the percentage of the retailer’s advertising expenditure that it will provide, then the retailer determines its advertising effort policy. We model this supply chain problem as a Stackelberg differential game, and provide the optimal advertising effort policy and advertising subsidy policy for the manufacturer and the retailer. Based on a Co-op advertising scenarios, we consider the supply disruption. When a supply disruption occurs, the initial cooperative advertising policy need to be revised. To solve this problem, the change of margin of manufacturer and retailer and market scale of product caused by supply disruption must be explicitly considered. This paper discusses how to model the supply disruptions and their impacts, and how to design cooperative advertising scheme under supply disruption.