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Cooperative Advertising in a Dynamic Retail Market Oligopoly

Author

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  • Anshuman Chutani

    ()

  • Suresh Sethi

    ()

Abstract

Cooperative advertising is a key incentive offered by a manufacturer to influence retailers’ promotional decisions. We study cooperative advertising in a dynamic retail oligopoly where a manufacturer sells his product through N competing retailers. We model the problem as a Stackelberg differential game in which the manufacturer announces his shares of advertising costs of the N retailers or his subsidy rates, and the retailers in response play a Nash differential game in choosing their optimal advertising efforts over time. We obtain the feedback equilibrium solution consisting of the optimal advertising policies of the retailers and manufacturer’s subsidy rates. We identify key drivers that influence the optimal subsidy rates and, in particular, obtain the conditions under which the manufacturer will not support the retailers. For the special case of two retailers we obtain insights on some key supply chain issues. First, we analyze its impact on profits of channel members and the extent to which it can coordinate the channel. Second, we investigate the case of an anti-discrimination act which restricts the manufacturer to offer equal subsidy rates to the two retailers. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Anshuman Chutani & Suresh Sethi, 2012. "Cooperative Advertising in a Dynamic Retail Market Oligopoly," Dynamic Games and Applications, Springer, vol. 2(4), pages 347-375, December.
  • Handle: RePEc:spr:dyngam:v:2:y:2012:i:4:p:347-375
    DOI: 10.1007/s13235-012-0053-8
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    File URL: http://hdl.handle.net/10.1007/s13235-012-0053-8
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    References listed on IDEAS

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    1. Pradeep K. Chintagunta & Dipak Jain, 1992. "A Dynamic Model of Channel Member Strategies for Marketing Expenditures," Marketing Science, INFORMS, vol. 11(2), pages 168-188.
    2. Raja Kali, 1998. "Minimum Advertised Price," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 647-668, December.
    3. Matthew Nagler, 2006. "An exploratory analysis of the determinants of cooperative advertising participation rates," Marketing Letters, Springer, vol. 17(2), pages 91-102, April.
    4. Prasad A. Naik & Ashutosh Prasad & Suresh P. Sethi, 2008. "Building Brand Awareness in Dynamic Oligopoly Markets," Management Science, INFORMS, vol. 54(1), pages 129-138, January.
    5. 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.
    6. Erickson, Gary M., 2009. "An oligopoly model of dynamic advertising competition," European Journal of Operational Research, Elsevier, vol. 197(1), pages 374-388, August.
    7. Chintagunta, Pradeep K & Jain, Dipak C, 1995. "Empirical Analysis of a Dynamic Duopoly Model of Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(1), pages 109-131, Spring.
    8. Sorger, Gerhard, 1989. "Competitive dynamic advertising : A modification of the Case game," Journal of Economic Dynamics and Control, Elsevier, vol. 13(1), pages 55-80, January.
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    Cited by:

    1. Agnieszka Wiszniewska-Matyszkiel & Marek Bodnar & Fryderyk Mirota, 2015. "Dynamic Oligopoly with Sticky Prices: Off-Steady-state Analysis," Dynamic Games and Applications, Springer, vol. 5(4), pages 568-598, December.
    2. 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.
    3. 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.
    4. 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.
    5. repec:wsi:ijitdm:v:16:y:2017:i:04:n:s0219622014400045 is not listed on IDEAS
    6. repec:eee:jomega:v:75:y:2018:i:c:p:97-117 is not listed on IDEAS

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