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Pricing and two-tier advertising with one manufacturer and one retailer

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  • Szmerekovsky, Joseph G.
  • Zhang, Jiang

Abstract

This paper considers the pricing decisions and two-tier advertising levels between one manufacturer and one retailer where customer demand depends on the retail price and advertisement by a manufacturer and a retailer. We solve a Stackelberg game with the manufacturer as the leader and the retailer as the follower. With price sensitive customer demand and a linear wholesale contract, we obtain the optimal decisions by the manufacturer and the optimal responses by the retailer. Our results show that cost sharing of local advertising does not work well, it is better for the manufacturer to advertise nationally and offer the retailer a lower wholesale price.

Suggested Citation

  • Szmerekovsky, Joseph G. & Zhang, Jiang, 2009. "Pricing and two-tier advertising with one manufacturer and one retailer," European Journal of Operational Research, Elsevier, vol. 192(3), pages 904-917, February.
  • Handle: RePEc:eee:ejores:v:192:y:2009:i:3:p:904-917
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    References listed on IDEAS

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    Cited by:

    1. repec:gam:jsusta:v:9:y:2017:i:10:p:1902-:d:115912 is not listed on IDEAS
    2. Tsao, Yu-Chung, 2010. "Managing multi-echelon multi-item channels with trade allowances under credit period," International Journal of Production Economics, Elsevier, vol. 127(2), pages 226-237, October.
    3. Sana, Shib Sankar, 2013. "Sales team's initiatives and stock sensitive demand — A production control policy," Economic Modelling, Elsevier, vol. 31(C), pages 783-788.
    4. Martín-Herrán, Guiomar & Sigué, Simon P., 2017. "An integrative framework of cooperative advertising: Should manufacturers continuously support retailer advertising?," Journal of Business Research, Elsevier, vol. 70(C), pages 67-73.
    5. Dridi, Dhouha & Ben Youssef, Slim, 2015. "A Game Theoretic Framework for Competing/Cooperating Retailers under price and advertising dependent demand," MPRA Paper 63317, University Library of Munich, Germany.
    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. 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.
    8. Karray, Salma, 2013. "Periodicity of pricing and marketing efforts in a distribution channel," European Journal of Operational Research, Elsevier, vol. 228(3), pages 635-647.
    9. Xie, JiaPing & Liang, Ling & Liu, LuHao & Ieromonachou, Petros, 2017. "Coordination contracts of dual-channel with cooperation advertising in closed-loop supply chains," International Journal of Production Economics, Elsevier, vol. 183(PB), pages 528-538.
    10. Cárdenas-Barrón, Leopoldo Eduardo & Sana, Shib Sankar, 2014. "A production-inventory model for a two-echelon supply chain when demand is dependent on sales teams׳ initiatives," International Journal of Production Economics, Elsevier, vol. 155(C), pages 249-258.
    11. 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.
    12. Giri, B.C. & Sharma, S., 2014. "Manufacturer's pricing strategy in a two-level supply chain with competing retailers and advertising cost dependent demand," Economic Modelling, Elsevier, vol. 38(C), pages 102-111.
    13. Ahmadi-Javid, Amir & Hoseinpour, Pooya, 2012. "On a cooperative advertising model for a supply chain with one manufacturer and one retailer," European Journal of Operational Research, Elsevier, vol. 219(2), pages 458-466.
    14. Sana, Shib Sankar, 2013. "Optimal contract strategies for two stage supply chain," Economic Modelling, Elsevier, vol. 30(C), pages 253-260.
    15. De, Sujit Kumar & Sana, Shib Sankar, 2013. "Fuzzy order quantity inventory model with fuzzy shortage quantity and fuzzy promotional index," Economic Modelling, Elsevier, vol. 31(C), pages 351-358.
    16. Viscolani, Bruno, 2012. "Pure-strategy Nash equilibria in an advertising game with interference," European Journal of Operational Research, Elsevier, vol. 216(3), pages 605-612.
    17. repec:gam:jsusta:v:10:y:2018:i:5:p:1392-:d:144099 is not listed on IDEAS
    18. Dridi, Dhouha & Ben Youssef, Slim, 2015. "Local advertising externalities and cooperation in one manufacturer-two retailers channel," MPRA Paper 62705, University Library of Munich, Germany.
    19. Gerhard Aust & Udo Buscher, 2016. "Game theoretic analysis of pricing and vertical cooperative advertising of a retailer-duopoly with a common manufacturer," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(1), pages 127-147, March.
    20. Juan Zhang & Qinglong Gou & Susan Li & Zhimin Huang, 2017. "Cooperative Advertising with Accrual Rate in a Dynamic Supply Chain," Dynamic Games and Applications, Springer, vol. 7(1), pages 112-130, March.
    21. Gerhard Aust & Udo Buscher, 2016. "Game theoretic analysis of pricing and vertical cooperative advertising of a retailer-duopoly with a common manufacturer," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(1), pages 127-147, March.
    22. Kunter, Marcus, 2012. "Coordination via cost and revenue sharing in manufacturer–retailer channels," European Journal of Operational Research, Elsevier, vol. 216(2), pages 477-486.
    23. repec:eee:jomega:v:75:y:2018:i:c:p:97-117 is not listed on IDEAS

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