Cooperative Advertising in Dual-Channel Supply Chain Under Asymmetric Demand Information

Abstract

ABSTRACT This study investigates cooperative advertising and retailers’ demand- information sharing in a dual-channel supply chain consisting of a manufacturer and a retailer, where the manufacturer sells products through a traditional retail channel and a direct online channel. Owing to the spillover effect of advertising, the manufacturer pays local advertising expenditure at a certain ratio to pump sales in both channels. In this setting, we examine the influence of information sharing on the optimal advertising expenditure, pricing mechanism, and performance of the manufacturer and retailer. The results show that the manufacturer benefits from information sharing, whereas the retailer benefits when the retail channel accounts for a small market share. Moreover, the more significant spillover effect of advertising increases the probability that the retailer shares information voluntarily. This study contributes to the literature by simultaneously considering information asymmetry and manufacturers’ advertising participation rate in the cooperative advertising problem. We find that a supplementary effect exists between cooperative advertising and information sharing, which provides guidelines to companies. If manufacturers set a higher advertising participation rate, the probability of signing an information-sharing contract with retailers increases. Moreover, retailers’ information sharing can induce manufacturers to offer a higher participation rate.