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Cooperative advertising in a distribution channel with fairness concerns

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  • Yang, Jing
  • Xie, Jinxing
  • Deng, Xiaoxue
  • Xiong, Huachun
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    Abstract

    Cooperative (co-op) advertising has been widely used in practice and employed as a strategy to improve the performance of a distribution channel. It is known from the existing models that co-op advertising could not achieve the channel coordination (i.e., maximize the total channel profit). In this paper, we consider a distribution channel consisting of a single manufacturer and a single retailer, and investigate the effect of the retailer’s fairness concerns. Applying the equilibrium analysis, we obtain the following results: (1) Channel coordination can be achieved if the retailer has fairness concerns and model parameters satisfy certain conditions. (2) Although both channel members become better off with co-op advertising if neither channel member has fairness concerns, we find situations where co-op advertising brings detrimental effects to the retailer if the retailer has fairness concerns. (3) The retailer’s fairness concerns may increase or decrease the equilibrium participation rate, the equilibrium advertising effort, and the equilibrium profit of the manufacturer and the whole channel. (4) We identify the conditions under which the effectiveness of co-op advertising can be improved or reduced by the retailer’s fairness concerns. As long as co-op advertising can bring extra profit to the manufacturer, the retailer’s fairness concerns could improve the effectiveness of the co-op advertising. (5) There exists a Pareto improvement for the profits of both the manufacturer and the retailer when a retailer without fairness concerns becomes fair-minded.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 227 (2013)
    Issue (Month): 2 ()
    Pages: 401-407

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    Handle: RePEc:eee:ejores:v:227:y:2013:i:2:p:401-407

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Marketing; Cooperative advertising; Fairness concerns; Channel coordination; Game theory;

    References

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    1. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
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    14. Aust, Gerhard & Buscher, Udo, 2012. "Vertical cooperative advertising and pricing decisions in a manufacturer–retailer supply chain: A game-theoretic approach," European Journal of Operational Research, Elsevier, vol. 223(2), pages 473-482.
    15. Bolton, Lisa E & Warlop, Luk & Alba, Joseph W, 2003. " Consumer Perceptions of Price (Un)Fairness," Journal of Consumer Research, University of Chicago Press, vol. 29(4), pages 474-91, March.
    16. Christoph H. Loch & Yaozhong Wu, 2008. "Social Preferences and Supply Chain Performance: An Experimental Study," Management Science, INFORMS, vol. 54(11), pages 1835-1849, November.
    17. Xie, Jinxing & Wei, Jerry C., 2009. "Coordinating advertising and pricing in a manufacturer-retailer channel," European Journal of Operational Research, Elsevier, vol. 197(2), pages 785-791, September.
    18. Huang, Zhimin & Li, Susan X., 2001. "Co-op advertising models in manufacturer-retailer supply chains: A game theory approach," European Journal of Operational Research, Elsevier, vol. 135(3), pages 527-544, December.
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    Cited by:
    1. Aust, Gerhard & Buscher, Udo, 2014. "Cooperative advertising models in supply chain management: A review," European Journal of Operational Research, Elsevier, vol. 234(1), pages 1-14.

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