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Local advertising externalities and cooperation in one manufacturer-two retailers channel with exogenous marginal profits

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  • Dridi, Dhouha
  • Ben Youssef, Slim

Abstract

Game theory is a relevant and powerful tool for analyzing strategic interactions in a supply chain in which the decision of each player affect the payoff of other players. In order to relax the classical two supply chain members’ situation to a three supply chain members’ situation and to integrate the problem of competition at retail level, we consider a supply chain consisting of a monopolistic manufacturer and two duopolistic retailers. The latter two are geographically related. Our paper examines the optimal decisions on advertising (local, national and cooperative advertising) in a centralized and a decentralized supply chain using Stackelberg – Cournot game, Stackelberg - Collusion game and Cooperative games, and we investigate the impact of the existing of competition at retail level, the retailer coalition and the cooperation between all supply chain members’ on the channel members’ optimal decisions, on the sales volume and on the profits. Applying the equilibrium analysis and using numerical example, comparing results indicates that all advertising, the sales volume of each member and the total profit in the centralized decision-making are larger than those in the decentralized decision-making. Retailer coalition harms themselves (in terms of profit) despite the increasing of sales, but is beneficial to the manufacturer. We identify also the feasible solutions of the best cooperative advertising scheme that members are interesting in cooperation.

Suggested Citation

  • Dridi, Dhouha & Ben Youssef, Slim, 2015. "Local advertising externalities and cooperation in one manufacturer-two retailers channel with exogenous marginal profits," MPRA Paper 62697, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:62697
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    File URL: https://mpra.ub.uni-muenchen.de/62697/1/MPRA_paper_62697.pdf
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    References listed on IDEAS

    as
    1. S. Chan Choi, 1991. "Price Competition in a Channel Structure with a Common Retailer," Marketing Science, INFORMS, vol. 10(4), pages 271-296.
    2. SeyedEsfahani, Mir Mehdi & Biazaran, Maryam & Gharakhani, Mohsen, 2011. "A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer-retailer supply chains," European Journal of Operational Research, Elsevier, vol. 211(2), pages 263-273, June.
    3. Aust, Gerhard & Buscher, Udo, 2012. "Vertical cooperative advertising and pricing decisions in a manufacturer–retailer supply chain: A game-theoretic approach," European Journal of Operational Research, Elsevier, vol. 223(2), pages 473-482.
    4. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58(4), pages 347-347.
    5. Slim Ben Youssef, 2013. "National Advertising and Cooperation in a Manufacturer-Two Retailers Channel," International Review of Management and Marketing, Econjournals, vol. 3(2), pages 75-85.
    6. 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.
    7. Sang Yong Kim & Richard Staelin, 1999. "Manufacturer Allowances and Retailer Pass-Through Rates in a Competitive Environment," Marketing Science, INFORMS, vol. 18(1), pages 59-76.
    8. Xie, Jinxing & Wei, Jerry C., 2009. "Coordinating advertising and pricing in a manufacturer-retailer channel," European Journal of Operational Research, Elsevier, vol. 197(2), pages 785-791, September.
    9. Karray, Salma & Zaccour, Georges, 2006. "Could co-op advertising be a manufacturer's counterstrategy to store brands?," Journal of Business Research, Elsevier, vol. 59(9), pages 1008-1015, September.
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    Cited by:

    1. Soroush Safarzadeh, 2023. "A game theoretic approach for pricing and advertising of an integrated product family in a duopoly," Journal of Combinatorial Optimization, Springer, vol. 45(5), pages 1-26, July.

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    More about this item

    Keywords

    Game theory; Cooperative advertising; Supply chain coordination; Retail competition; retail coalition;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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