Abstract
Being a scarce resource, airport advertising spaces/billboards have a fixed capacity and the demand largely depends on the firm’s marketing efforts. Besides selling the limited capacity directly to its clients, it is common for an airport advertising firm to sell a portion of the capacity, at a discount price, through advertising agencies. By splitting the capacity into two channels, the airport advertising firm encounters a capacity de-pooling effect and it forms into a competition and collaboration relationship with the agencies. In this paper, we investigate the problem of how to fight against the de-pooling effect from a supply chain perspective. Specifically, we study the interactive decisions between an airport advertising firm and an agency firm. The airport advertising firm determines the maximal capacity to sell to the agency firm, and then the two firms compete on marketing efforts with the objective of maximizing their respective profits. We characterize the effect of capacity de-pooling and devise a coordination contract to fight against such effect. Numerical experiments are conducted to evaluate the potential benefit of the contract.
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