Cooperative advertising and pricing decisions in a manufacturer-retailer supply chain; a game-theoretic approach

Abstract

The manufacturer participating in a cooperative advertising scheme reimburses a percentage of local advertising expenditures to encourage the retailer into more promotional initiatives. The present study aims to investigate the supply chain coordination through cooperative advertising and pricing by proposing a relatively general consumer demand function. Based on the underlying balance of power among supply chain members, a leader-follower game structure (i.e., Stackelberg manufacturer game) is discussed. Moreover, numerical simulations are provided to exemplify implicit optimal solutions of the Stackelberg manufacturer games. The unprecedented results obtained from this study may be summarized as follows: the manufacturer prefers to advertise nationally rather than to support local promotional activities when retailer advertising becomes inefficient; 2) we find that the manufacturer`s price is entirely stable compared to classical linear model and increases as effectiveness ratio of national to local advertising increases.