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Endogenous choice of price or quantity contract with upstream advertising

Author

Listed:
  • Qing Hu

    (Kushiro Public University of Economics)

  • Dan Li

    (School of Management, Xi’an Polytechnic University)

  • Tomomichi Mizuno

    (Graduate School of Economics, Kobe University)

Abstract

We investigate a supply chain comprising a manufacturer engaged in advertising and two retailers who compete with differentiated products. We examine the endogenous choice between competing on quantity or price for the retailers. Our analysis reveals that, depending on the level of product substitutability, the range of possible outcomes is varied and includes Cournot, Bertrand, and Cournot-Bertrand under informative advertising. This result contradicts the established understanding that firms tend to engage in Cournot competition as their dominant strategy. Furthermore, we find that under persuasive advertising, Cournot or Bertrand outcomes may be optimal, but Cournot-Bertrand never arises as an equilibrium.

Suggested Citation

  • Qing Hu & Dan Li & Tomomichi Mizuno, 2023. "Endogenous choice of price or quantity contract with upstream advertising," Discussion Papers 2301, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2301
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    References listed on IDEAS

    as
    1. Qing Hu & Tomomichi Mizuno, 2021. "Endogenous timing and manufacturer advertising: A note," Metroeconomica, Wiley Blackwell, vol. 72(2), pages 309-320, May.
    2. Zhang, Jianqiang & Cao, Qingning & He, Xiuli, 2020. "Manufacturer encroachment with advertising," Omega, Elsevier, vol. 91(C).
    3. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    4. David A. Soberman, 2004. "Research Note: Additional Learning and Implications on the Role of Informative Advertising," Management Science, INFORMS, vol. 50(12), pages 1744-1750, December.
    5. Victor J. Tremblay & Carol Horton Tremblay & Kosin Isariyawongse, 2013. "Endogenous Timing And Strategic Choice: The Cournot-Bertrand Model," Bulletin of Economic Research, Wiley Blackwell, vol. 65(4), pages 332-342, October.
    6. DongJoon Lee & Kangsik Choi, 2016. "BERTRAND Vs. COURNOT COMPETITION WITH UPSTREAM FIRM INVESTMENT," Bulletin of Economic Research, Wiley Blackwell, vol. 68(S1), pages 56-65, December.
    7. Witness Simbanegavi, 2009. "Informative Advertising: Competition Or Cooperation?," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 147-166, March.
    8. Tremblay, Carol Horton & Tremblay, Victor J., 2011. "The Cournot-Bertrand model and the degree of product differentiation," Economics Letters, Elsevier, vol. 111(3), pages 233-235, June.
    9. Arya, Anil & Mittendorf, Brian & Sappington, David E.M., 2008. "Outsourcing, vertical integration, and price vs. quantity competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 1-16, January.
    10. Basak, Debasmita & Wang, Leonard F.S., 2016. "Endogenous choice of price or quantity contract and the implications of two-part-tariff in a vertical structure," Economics Letters, Elsevier, vol. 138(C), pages 53-56.
    11. Hiroyuki Nakata, 2011. "Informative advertising with spillover effects," International Journal of Economic Theory, The International Society for Economic Theory, vol. 7(4), pages 373-386, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Exporting; endogenous competition mode; advertising; vertical relationship;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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