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Cooperative Advertising in a Dynamic Retail Market Oligopoly

Listed author(s):
  • Anshuman Chutani

    ()

  • Suresh Sethi

    ()

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

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File URL: http://hdl.handle.net/10.1007/s13235-012-0053-8
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Article provided by Springer in its journal Dynamic Games and Applications.

Volume (Year): 2 (2012)
Issue (Month): 4 (December)
Pages: 347-375

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Handle: RePEc:spr:dyngam:v:2:y:2012:i:4:p:347-375
DOI: 10.1007/s13235-012-0053-8
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/economics/journal/13235

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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. Matthew Nagler, 2006. "An exploratory analysis of the determinants of cooperative advertising participation rates," Marketing Letters, Springer, vol. 17(2), pages 91-102, April.
  3. 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.
  4. Erickson, Gary M., 2009. "An oligopoly model of dynamic advertising competition," European Journal of Operational Research, Elsevier, vol. 197(1), pages 374-388, August.
  5. 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.
  6. Raja Kali, 1998. "Minimum Advertised Price," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 647-668, December.
  7. 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.
  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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