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Demand Expansion and Price Premium Effects of Marketing Effort: Modeling and Comparative Analysis

Author

Listed:
  • Vinay Ramani

    () (Indian Institute of Management, Udaipur)

  • Sanjeev Swami

    () (Dayalbagh Educational Institute)

Abstract

In this paper, we compare the outcomes of demand expansion and price premium effects in a dyadic supply chain. We find that in the decentralized setting, the output and effort, as well as the profits of both the manufacturer and the retailer under a demand expansion scenario are lower than that under the price premium scenario. Surprisingly, we find that under both the cases of demand expansion and price premium, the profit of the manufacturer is greater than the profit of the retailer, even though it is only the manufacturer who incurs all the cost.

Suggested Citation

  • Vinay Ramani & Sanjeev Swami, 2017. "Demand Expansion and Price Premium Effects of Marketing Effort: Modeling and Comparative Analysis," Economics Bulletin, AccessEcon, vol. 37(2), pages 1234-1246.
  • Handle: RePEc:ebl:ecbull:eb-17-00155
    as

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    References listed on IDEAS

    as
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    7. Roger A. Sedjo & Stephen K. Swallow, 2002. "Voluntary Eco-Labeling and the Price Premium," Land Economics, University of Wisconsin Press, vol. 78(2), pages 272-284.
    8. 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.
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    More about this item

    Keywords

    Demand Expansion; Price Premium; Stackelberg Game; First Mover Advantage;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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