Vertical Cooperative Advertising with Substitute Brands

You-Hua Chen,Xiao-Wei Wen

doi:10.1155/2013/480401

You-Hua Chen, Xiao-Wei Wen

Open Access

https://doi.org/10.1155/2013/480401

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Abstract

Cooperative (co-op) advertising is attracting more and more attention. This paper analyzes co-op advertising behavior based on a dual-brand model with a single manufacturer and a single retailer, and some interesting conclusions are achieved. Firstly, the firm in the supply chain advertises both brands, and the difference of advertising expenditure is not very large in equilibrium. Secondly, the retailer's advertising and the manufacturer's participation ratios depend on both the retailer's and the manufacturer's marginal profits. Thirdly, the stimulating effect increases the advertising investment while the competition effect decreases it, but they have no effect on the manufacturer's participation ratio. Fourthly, co-op advertising is more sensitive to the manufacturer's marginal profits than those of the retailer. Lastly, total advertising investment and profit are greater under cooperative decision than under Stackelberg decision.

Highlights

Taking cooperative advertising as an example, the industrial firm becomes more dependent on its cooperative partners [1]
Assume that there are one manufacturer and one retailer in the supply chain, and they supply two substitute brands, denoted to brand i (i = 1, 2) simultaneously. (The substitute of the two brands is represented by the competition effect of co-op advertising.) Advertising has two effects: stimulating effect and competition effect
The retailer determines that the co-op advertising expenditure while the manufacturer decides its best participation ratio. (This is a general assumption, and almost all other studies propose that assumption.) a dual-brand model with a single manufacturer and a single retailer is established as follows

Summary

Introduction

Taking cooperative advertising as an example, the industrial firm becomes more dependent on its cooperative partners [1]. (Dynamic model has an advantage in analyzing long-term effect of advertising while static model makes it easy to study how the variation of parameter affects the equilibrium solution.) Based on Nerlove and Arrow’s [21] goodwill model, Jørgensen et al [2] and Jørgensen et al [20] examined the phenomenon that consumer goods producers prefer to launch co-op advertising with their retailers. By employing the competition effect, (since there are two retailers in the supply chain, the competition between the two retailers affects the manufacturer’s strategy) Wang et al [14] extended coop advertising behavior to one-manufacturer two-retailer system In their model, the manufacturer invests both in local advertising and in national brand name advertising, but national brand name advertising reduces local advertising, and the manufacturer does not always support the retailer’s local advertising. Some concluding remarks are given in the last section

Model and Assumptions

Model Analysis and Main Results

Findings

Concluding Remarks