Abstract
A two-stage game is developed with network externalities where, besides pricing decisions, the retailer and manufacturer can determine their advertising investments and advertising participation rates for each stage. In addition to the full cooperation advertising model, three part cooperation advertising models are established. We develop propositions and insights from the comparison of these models. Our main findings are as follows: 1) the equilibrium solutions critically depend on the effects of network externalities; 2) the optimal choice in a two-stage game is to achieve full cooperation; and 3) a second-best choice for the manufacturer is to share the retailer’s advertising in the first stage. Our research results have guiding significance for supply chain member’s decision-making in local advertising practice.
Highlights
Cooperative advertising has played a very important role in supply chain coordination
A two-stage game is developed with network externalities where, besides pricing decisions, the retailer and manufacturer can determine their advertising investments and advertising participation rates for each stage
Our main findings are as follows: 1) the equilibrium solutions critically depend on the effects of network externalities; 2) the optimal choice in a two-stage game is to achieve full cooperation; and 3) a second-best choice for the manufacturer is to share the retailer’s advertising in the first stage
Summary
Cooperative advertising has played a very important role in supply chain coordination. In order to encourage the retailer to advertise more, cooperative advertising strategies are widely adopted by the manufacturer. They jointly improve the profitability of the entire supply chain. We focus on how the game players adjust their pricing strategies and cooperative advertising strategies under network externalities. This is a new and interesting topic of research. We have a discussion on cooperative advertising in a two-stage supply chain with network externalities.
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