Information acquisition with advertising threshold effect under manufacturer encroachment in a supply chain

Abstract

In this paper, we examine the interaction between a retailer’s information acquisition and a manufacturer’s advertising strategies by incorporating the advertising threshold effect under manufacturer encroachment. We elaborate on two acquisition timings, namely, ex ante acquisition and ex post acquisition, depending on whether the retailer makes the information acquisition decision before or after the manufacturer’s advertising decision. We demonstrate that under ex ante acquisition, the retailer’s acquisition incentive and the manufacturer’s optimal advertising level exhibit a non-monotonic relationship with the advertising threshold. Under ex post acquisition, given that the threshold is not too high, the retailer’s acquisition incentive weakly increases with the advertising threshold, and the optimal advertising level is always pushed up by the advertising threshold effect and the acquisition inducing effect. More importantly, the advertising threshold effect does not necessarily hurt (benefit) the manufacturer (retailer), as the information acquisition effect can conditionally alleviate the detrimental effect of the advertising threshold. Moreover, the retailer may prefer either ex ante acquisition or ex post acquisition, depending on the advertising level comparison. By contrast, the manufacturer prefers ex post acquisition only when the acquisition incentive under ex post acquisition is higher than that under ex ante acquisition; otherwise, the manufacturer always weakly prefers ex ante acquisition.