Cooperative advertising and pricing models in a dynamic marketing channel

Abstract

This paper studies dynamic pricing and cooperative advertising strategies in a two-member channel of distribution. We propose differential game models that incorporate the carryover effects of advertising over time for both manufacturer and retailer. Two different models are studied. Firstly, we discussed a non-cooperative differential game which the manufacturer supports partially the cost of the promotion activities. Secondly, both channel members cooperatively determine their respective strategies. In these two cases, dynamic cooperative advertising and pricing strategies are characterized. Then numerical simulation method is applied to analyze the sensitivity of main model parameters and compare the main results of the two models. The simulation results show that the cooperative model achieves better coordination than the non-cooperative model with the following features: all channel members achieve higher advertising efforts and profit level in the cooperative case rather than in the non-cooperative case.