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National advertising and cooperation in a manufacturer-two-retailers channel

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  • Ben Youssef, Slim
  • Dridi, Dhouha

Abstract

We consider a supply channel composed of one manufacturer and two retailers. Three cases are studied. The non-cooperative one is a leader-follower relationship. The manufacturer determines his spending in national advertising and the whole sale price. Then, the retailers determine non-cooperatively the price for consumers. The second case is a partial-cooperative one where retailers decide jointly for the price. In the third case, all members of the channel cooperate by maximizing a joint profit function. The spending in advertising and the quantity sold are the lowest in the partial-cooperative case, while retailers' price is the highest. Interestingly, when the degree of substituability between the two products proposed by retailers is low, these latter are worse off with partial-cooperation with respect to non-cooperation. Partial-cooperation is always the worst case for the manufacturer, the whole channel, consumers' surplus and social welfare, while cooperation is the best case. Cooperating members can share the extra-profit by a whole sale price.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35016.

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Date of creation: Nov 2011
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Handle: RePEc:pra:mprapa:35016

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Keywords: Game theory; Manufacturer-two-retailers; National advertising; Cooperation;

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  1. Yue, Jinfeng & Austin, Jill & Wang, Min-Chiang & Huang, Zhimin, 2006. "Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount," European Journal of Operational Research, Elsevier, vol. 168(1), pages 65-85, January.
  2. Salma Karray & Georges Zaccour, 2007. "Effectiveness Of Coop Advertising Programs In Competitive Distribution Channels," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 151-167.
  3. Karray, Salma & Zaccour, Georges, 2006. "Could co-op advertising be a manufacturer's counterstrategy to store brands?," Journal of Business Research, Elsevier, vol. 59(9), pages 1008-1015, September.
  4. GĂ©rard P. Cachon & Martin A. Lariviere, 2005. "Supply Chain Coordination with Revenue-Sharing Contracts: Strengths and Limitations," Management Science, INFORMS, vol. 51(1), pages 30-44, January.
  5. 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.
  6. SeyedEsfahani, Mir Mehdi & Biazaran, Maryam & Gharakhani, Mohsen, 2011. "A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer-retailer supply chains," European Journal of Operational Research, Elsevier, vol. 211(2), pages 263-273, June.
  7. Yang, Shan-Lin & Zhou, Yong-Wu, 2006. "Two-echelon supply chain models: Considering duopolistic retailers' different competitive behaviors," International Journal of Production Economics, Elsevier, vol. 103(1), pages 104-116, September.
  8. Xiao, Tiaojun & Qi, Xiangtong, 2008. "Price competition, cost and demand disruptions and coordination of a supply chain with one manufacturer and two competing retailers," Omega, Elsevier, vol. 36(5), pages 741-753, October.
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