Myopic Retailer’s Cooperative Advertising Strategies in Supply Chain Based on Differential Games

Abstract

In this paper, the cooperative advertising problem between manufacturer and retailer in supply chain is studied based on differential game theory and a stochastic differential game model is established. This paper describes the dynamic advertising strategies of manufacturers and retailers, and obtains the feedback Stackelberg Equilibrium solution according to the dynamic programming principle. This paper is based on the fact that the majority of retailers in the supply chain only consider their immediate profits in order to maximise their own short-term profits. The results show that the type of advertising support from manufacturers to retailers depends on the marginal profit of both parties. In the balanced advertising strategy of both parties in the cooperative advertising plan, the manufacturer mainly makes long-term advertising to build brand goodwill. With the support of manufacturers, retailers mainly make short-term advertisements to stimulate sales. Cooperative advertising is a coordination mechanism in the supply chain, which can improve retailer’s willingness to follow the manufacturer’s strategy.