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Home  >  Transasctions of NAMP VOL2

22. Cooperative Advertising in a Manufacturer-Distributor-Retailer Supply Chain by Peter E. Ezimadu, Transactions of NAMP Vol 2, (Nov., 2016), pp 205 – 216
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Abstract

Classical cooperative advertising models centre on manufacturer-retailer relationship. Although a lot of such models have been empirically validated and applied, none has categorically considered the distributor as an integral part of cooperative advertising model. This work deals with cooperative advertising in a manufacturer-distributor-retailer supply chain in which the manufacturer is the Stackelberg leader while the distributor and the retailer are the followers using optimal control and differential game theory. It models the dynamic effect of retail advertising on sale using Sethi sale-advertising model. The work addresses channel performance through the determination of the retailer’s optimal advertising strategy, and the manufacturer and distributor’s optimal participation rates. It compared two channel structures: subsidised and unsubsidised channels. It shows that the manufacturer and distributor should subsidise retail advertising only if the rate of increase of their individual payoffs are twice greater than that of the retailer. By comparing these structures using the advertising effort and payoffs, it observes that the subsidised channel structure’s advertising effort is higher, and consequently generates higher individual player’s payoff as well as higher channel payoff than the unsubsidised channel structure.  It thus recommends that the manufacturer and distributor should subsidise retail advertising.

Keywords: Cooperative advertising, Sethi sale-advertising model, Optimal control, differential game theory, Supply chain

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