Cooperative advertising with two local advertising options in a retailer duopoly

Document Type : Article

Authors

Department of Industrial Engineering, KHATAM University, Tehran, Iran

10.24200/sci.2020.53826.3440

Abstract

This paper considers the issue of cooperative advertising with local advertising options in a channel with three players, including a manufacturer and two retailers. The current study, expands the cooperative advertising literature to a case where there exist two options for local advertising investment. Moreover, this paper compares two cases of presence and absence of cooperative advertising, which has almost been neglected in cooperative advertising literature. The purpose is to determine equilibrium strategy of retailers’ advertising options, players’ advertising expenditures and the manufacturer’ participation rates on retailers’ investment. The aforementioned problem is analyzed as a three-stage game, using backward induction. In the first and second stages, advertising investments of players are determined analytically. Then, in the third stage, the Nash equilibrium pair of advertising options can be found using numerical study. The problem is solved using illustrative examples in two cases of presence and absence of the cooperative advertising contract. Finally, the conditions for which offering the contract is win-win for all players, are identified. A Sensitivity analysis has been carried out to explain the efficacy of the model.

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