This article addresses an optimization problem using Game Theory in an advertising environment where decisions regarding the advertising expenditure of a supply chain members must be determined. We study a cooperative (Co-op) advertising problem in a channel comprising of one manufacturer and two competing/cooperating retailers. The manufacturer leads the channel and Stackelberg game is played between the echelons. Moreover, the retailers in the downstream echelon can adopt either Collusion or Stackelberg behavior. The possibility of coordination via a two-way subsidy strategy is discussed under two scenarios in which either the participation rates are exogenously specified or the members endogenously decide on these rates. It is shown that the perfect coordination of the channel is obtained via two-way subsidy strategyin the exogenous scenario;furthermore, under the endogenous scenario, with the whole system point of view, the two-way subsidy strategyis superior to the traditional one-way strategy.
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