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Cooperative advertising for competing manufacturers: The impact of long-term promotional effects

Listed author(s):
  • Karray, Salma
  • Martín-Herrán, Guiomar
  • Sigué, Simon-Pierre

The effectiveness of cooperative advertising programs is studied in a market where two competing manufacturers deal with an exclusive retailer and two products. Two two-stage game theoretic models are developed to analyze the long-term effects of retailer's promotions, which can be positive or negative, on the effectiveness of cooperative advertising. Closed-form equilibrium solutions are obtained and compared. We find that the level of product substitutability and the sign and magnitude of the long-term effects of retailer's promotions on sales determine whether cooperative advertising should be offered and accepted by the manufacturers and retailer. In particular, depending on the level of product substitutability, cooperative advertising can benefit both the manufacturers and retailer even when retailer's promotions negatively affect future sales. Conversely, it may not be in the interest of the manufacturers to offer cooperative advertising when the products are fairly undifferentiated regardless of the nature of the long-term effects of promotions. Finally, the manufacturers and retailer may refuse to respectively offer or participate in cooperative advertising programs that enhance total channel profits.

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File URL: http://www.sciencedirect.com/science/article/pii/S0925527316303309
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Article provided by Elsevier in its journal International Journal of Production Economics.

Volume (Year): 184 (2017)
Issue (Month): C ()
Pages: 21-32

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Handle: RePEc:eee:proeco:v:184:y:2017:i:c:p:21-32
DOI: 10.1016/j.ijpe.2016.11.007
Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

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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. Yang, Jing & Xie, Jinxing & Deng, Xiaoxue & Xiong, Huachun, 2013. "Cooperative advertising in a distribution channel with fairness concerns," European Journal of Operational Research, Elsevier, vol. 227(2), pages 401-407.
  3. 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.
  4. Jorgensen, Steffen & Taboubi, Sihem & Zaccour, Georges, 2003. "Retail promotions with negative brand image effects: Is cooperation possible?," European Journal of Operational Research, Elsevier, vol. 150(2), pages 395-405, October.
  5. Gangshu (George) Cai & Yue Dai & Sean X. Zhou, 2012. "Exclusive Channels and Revenue Sharing in a Complementary Goods Market," Marketing Science, INFORMS, vol. 31(1), pages 172-187, January.
  6. Herrington, J. Duncan & Dempsey, William A., 2005. "Comparing the Current Effects and Carryover of National-, Regional-, and Local-Sponsor Advertising," Journal of Advertising Research, Cambridge University Press, vol. 45(01), pages 60-72, March.
  7. Bin Liu & Gangshu (George) Cai & Andy A. Tsay, 2014. "Advertising in Asymmetric Competing Supply Chains," Production and Operations Management, Production and Operations Management Society, vol. 23(11), pages 1845-1858, November.
  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. Tsao, Yu-Chung, 2015. "Cooperative promotion under demand uncertainty," International Journal of Production Economics, Elsevier, vol. 167(C), pages 45-49.
  10. Jørgensen, Steffen & Zaccour, Georges, 2014. "A survey of game-theoretic models of cooperative advertising," European Journal of Operational Research, Elsevier, vol. 237(1), pages 1-14.
  11. Xie, Jinxing & Ai, Song, 2006. "A note on "Cooperative advertising, game theory and manufacturer-retailer supply chains"," Omega, Elsevier, vol. 34(5), pages 501-504, October.
  12. Spence, Michael, 1976. "Product Differentiation and Welfare," American Economic Review, American Economic Association, vol. 66(2), pages 407-414, May.
  13. 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.
  14. 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.
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