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Game theoretic analysis of pricing and vertical cooperative advertising of a retailer-duopoly with a common manufacturer

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  • Gerhard Aust

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  • Udo Buscher

Abstract

This paper considers competition of duopolistic retailers, who sell substitutable products supplied by a single manufacturer offering a vertical cooperative advertising program. The price-dependent component of the demand function is derived from the consumers’ utility function in order to avoid logically inconsistent results. Additionally, each supply chain member can increase the costumers’ demand by advertising. By means of game theory, we get the following results: (a) Retailer competition harms all players, but is beneficial to the consumers. (b) Stronger competition is followed by less advertising. (c) Channel-leadership is not always advantageous to the manufacturer, and—likewise—retailers can also be better off when accepting followership. However, as our analysis shows, the increased complexity of the model under consideration reaches the limits of an analytical solution. Therefore, we give a brief outlook on non-nalytical solution methods for Nash and Stackelberg games, that could be used in future research, in the end of our paper. Copyright Springer-Verlag Berlin Heidelberg 2016

Suggested Citation

  • 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.
  • Handle: RePEc:spr:cejnor:v:24:y:2016:i:1:p:127-147
    DOI: 10.1007/s10100-014-0338-7
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    References listed on IDEAS

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    Cited by:

    1. Marijana Zekić-Sušac & Rudolf Scitovski & Goran Lešaja, 2018. "CEJOR special issue of Croatian Operational Research Society," 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. 26(3), pages 531-534, September.

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