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Cooperative advertising, game theory and manufacturer-retailer supply chains


  • Li, Susan X.
  • Huang, Zhimin
  • Zhu, Joe
  • Chau, Patrick Y. K.


Cooperative (co-op) advertising plays a significant role in marketing programs in conventional supply chains and makes up the majority of promotional budgets in many product lines for both manufacturers and retailers. We develop three strategic models for determining equilibrium marketing and investment effort levels for a manufacturer and a retailer in a two-member supply chain. Especially, we address the impact of brand name investments, local advertising, and sharing policy on co-op advertising programs in these models. The first model offers a formal normative approach for analyzing the traditional co-op advertising program where the manufacturer is the leader and the retailer is a follower. The second model provides a further analysis on this manufacturer-dominated relationship. The third model incorporates the recent market trend of retailing power shifts from manufacturers to retailers to analyze efficiencies of co-op advertising programs. We examine the effect of supply chain on the differences in profits resulting from following coordinated strategies as opposed to leader-follower strategies. A cooperative bargaining approach is utilized for determine the best co-op advertising scheme for achieving full coordination in the supply chain.

Suggested Citation

  • Li, Susan X. & Huang, Zhimin & Zhu, Joe & Chau, Patrick Y. K., 2002. "Cooperative advertising, game theory and manufacturer-retailer supply chains," Omega, Elsevier, vol. 30(5), pages 347-357, October.
  • Handle: RePEc:eee:jomega:v:30:y:2002:i:5:p:347-357

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    References listed on IDEAS

    1. K. Sridhar Moorthy, 1988. "Strategic Decentralization in Channels," Marketing Science, INFORMS, vol. 7(4), pages 335-355.
    2. Rajeev Kohli & Heungsoo Park, 1989. "A Cooperative Game Theory Model of Quantity Discounts," Management Science, INFORMS, vol. 35(6), pages 693-707, June.
    3. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    4. Abel P. Jeuland & Steven M. Shugan, 1983. "Managing Channel Profits," Marketing Science, INFORMS, vol. 2(3), pages 239-272.
    5. Steven M. Shugan, 1985. "Implicit Understandings in Channels of Distribution," Management Science, INFORMS, vol. 31(4), pages 435-460, April.
    6. 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.
    7. Jehoshua Eliashberg, 1986. "Arbitrating a Dispute: A Decision Analytic Approach," Management Science, INFORMS, vol. 32(8), pages 963-974, August.
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