Manufacturer's cooperative advertising, demand uncertainty, and information sharing

Abstract

We assume a manufacturer–retailer supply chain where the manufacturer opens an online channel and provides a monetary support to the retailer to implement a local advertising campaign. Both the manufacturer and the retailer have their own information about the state of market demand. We thus examine the value of manufacturer's cooperative advertising and its strategic influence on information sharing of the manufacturer and the retailer. Our results show that the manufacturer's cooperative advertising coordinates the dual-channel distributions effectively and helps improve the channel performance under the environment of demand uncertainty. However, the manufacturer's cooperative advertising also stimulates the retailer to distort its information while the manufacturer has a motivation to understate its forecast. Hence, an advertising agency should be employed to verify the shared information and help make an optimal investment in advertising, so that information distortion can be eliminated and optimum results can be achieved.