Supply chain coordination in advertising and pricing with online advertising fraud

Abstract

ABSTRACT In the digital era, online advertising fraud unfortunately undermines advertising and pricing cooperation in supply chains. In order to improve advertising effectiveness in a supply chain with a manufacturer and a retailer, this paper proposes three coordination mechanisms: cooperative advertising quality improvement (CQ), quality discount (QD) and a combination of the two (CQD). We derive the equilibrium advertising and pricing decisions in closed form under each mechanism. We show that improving advertising quality is always profitable for the two members, and that with QD included (either QD or CQD) can better coordinate the supply chain than CQ alone. However, the integration of a CQ and QD scheme is not always effective due to their interaction effects. Each mechanism can be achieved as an equilibrium strategy for supply chain members depending on their advertising effects. These insights offer theoretical evidence for the design of a supply chain coordination strategy.