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Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain

Author

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  • Anshuman Chutani

    (Binghamton University, State University of New York)

  • Suresh P. Sethi

    (The University of Texas at Dallas)

Abstract

Cooperative advertising is an incentive offered by a manufacturer to influence retailers’ promotional decisions. We study a dynamic durable goods duopoly with a manufacturer and two independent and competing retailers. The manufacturer, as a Stackelberg leader, announces his wholesale prices and his shares of retailers’ advertising costs, and the retailers in response play a Nash differential game in choosing their optimal retail prices and advertising efforts over time. We obtain the feedback equilibrium policies for the manufacturer and the retailers in explicit form for a linear demand formulation. We investigate issues, like channel coordination and antidiscriminatory legislation, and also study a case, when the manufacturer sells through only one retailer and the second retailer sells a competing brand.

Suggested Citation

  • Anshuman Chutani & Suresh P. Sethi, 2012. "Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain," Journal of Optimization Theory and Applications, Springer, vol. 154(2), pages 615-643, August.
    • Handle: RePEc:spr:joptap:v:154:y:2012:i:2:d:10.1007_s10957-012-0034-5
    DOI: 10.1007/s10957-012-0034-5
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    References listed on IDEAS

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    Cited by:

    1. Régis Chenavaz & Corina Paraschiv & Gabriel Turinici, 2017. "Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach," Working Papers hal-01592958, HAL.
    2. Karray, Salma & Martín-Herrán, Guiomar & Zaccour, Georges, 2017. "Assessing the profitability of cooperative advertising programs in competing channels," International Journal of Production Economics, Elsevier, vol. 187(C), pages 142-158.
    3. 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.
    4. Qinglong Gou & Juzhi Zhang & Juan Zhang & Liang Liang, 2017. "Nash Equilibria of Co-Operative Advertising Programs with Advertising Threshold Effects," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 16(04), pages 981-1004, July.
    5. Karray, Salma & Martín-Herrán, Guiomar & Sigué, Simon-Pierre, 2017. "Cooperative advertising for competing manufacturers: The impact of long-term promotional effects," International Journal of Production Economics, Elsevier, vol. 184(C), pages 21-32.
    6. Chenavaz, Régis Y. & Eynan, Amit, 2021. "Advertising, goodwill, and the Veblen effect," European Journal of Operational Research, Elsevier, vol. 289(2), pages 676-682.
    7. Régis Chenavaz & Corina Paraschiv & Gabriel Turinici, 2021. "Dynamic Pricing of New Products in Competitive Markets: A Mean-Field Game Approach," Dynamic Games and Applications, Springer, vol. 11(3), pages 463-490, September.
    8. Chutani, Anshuman & Sethi, Suresh P., 2018. "Dynamic cooperative advertising under manufacturer and retailer level competition," European Journal of Operational Research, Elsevier, vol. 268(2), pages 635-652.
    9. Dridi, Dhouha & Ben Youssef, Slim, 2015. "Local advertising externalities and cooperation in one manufacturer-two retailers channel," MPRA Paper 62705, University Library of Munich, Germany.
    10. Régis Chenavaz & Octavio Escobar & Xavier Rousset, 2019. "An analytical framework for retailer price and advertising decisions for products with temperature-sensitive demand," Applied Economics, Taylor & Francis Journals, vol. 51(52), pages 5683-5693, November.
    11. Qian, Zhifeng & Day, Steven James & Ignatius, Joshua & Dhamotharan, Lalitha & Chai, Junwu, 2024. "Digital advertising spillover, online-exclusive product launches, and manufacturer-remanufacturer competition," European Journal of Operational Research, Elsevier, vol. 313(2), pages 565-586.
    12. Martín-Herrán, Guiomar & Rubio, Santiago J., 2021. "On coincidence of feedback and global Stackelberg equilibria in a class of differential games," European Journal of Operational Research, Elsevier, vol. 293(2), pages 761-772.
    13. Fujisawa, Chieko & Kasuga, Norihiro, 2021. "How should durable goods firms combine online and mass media advertisements to promote sales?," 23rd ITS Biennial Conference, Online Conference / Gothenburg 2021. Digital societies and industrial transformations: Policies, markets, and technologies in a post-Covid world 238023, International Telecommunications Society (ITS).
    14. Michał Kot, 2022. "An agent-based model of consumer choice. An evaluation of the strategy of pricing and advertising," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 32(1), pages 73-95.
    15. Qi Chen & Qi Xu & Cui Wu, 2019. "Dynamic Matching in Cloud Manufacturing considering Matching Costs," Complexity, Hindawi, vol. 2019, pages 1-16, July.
    16. Régis Chenavaz & Sajjad M. Jasimuddin, 2017. "An analytical model of the relationship between product quality and advertising," Post-Print hal-01685892, HAL.
    17. 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.
    18. 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.
    19. Jiayi Sun & Deqing Tan, 2023. "Non-cooperative Mode, Cost-Sharing Mode, or Cooperative Mode: Which is the Optimal Mode for Desertification Control?," Computational Economics, Springer;Society for Computational Economics, vol. 61(3), pages 975-1008, March.
    20. Kogan, Konstantin, 2016. "Pricing competition with inventory considerations in a hazard rate-prone market of durables," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 298-313.
    21. Fujisawa, Chieko & Kasuga, Norihiro, 2022. "Differentiation Strategy for Firms: Online Ad versus Mass Media Ad," 31st European Regional ITS Conference, Gothenburg 2022: Reining in Digital Platforms? Challenging monopolies, promoting competition and developing regulatory regimes 265629, International Telecommunications Society (ITS).

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