A Model for Cooperative Advertising and Pricing Decisions in Manufacturer-Retailer Supply Chain with Discount: A Game Theory Approach

Document Type: Research Paper

Authors

Faculty of Industrial and Mechanical Engineering, Qazvin Branch, Islamic Azad University, Qazvin, Iran

Abstract

Coordinating the supply chain is among the most important subjects that is extensively addressed in the related literature. If a supply chain is to be coordinated, it is equivalent to say that we must solve a problem related to competition and cooperation. The game theory is obviously one of the most effective methods to solve such problems, in which the players of the supply chain are assumed to engage in cooperative and non-cooperative games. The current study aims to coordinate a two-level supply chain consisting of a manufacturer and a retailer. This will be achieved using cooperative advertisement along with pricing decisions such that the manufacturer offers a price discount to the retailer and the demand is affected by pricing and advertisement. Cooperative advertisement is a coordinated effort made by all the members of the supply chain to increase the customer demand, in which the retailer does the local advertisement and the manufacturer pays for a portion or all the costs of the retailer advertisement. We consider two models for manufacturer-retailer relation using the game theory: the manufacturer-Stackelberg and the retailer-Stackelberg games with asymmetric power distribution.

Keywords

Main Subjects


Amrouche N., Yan R. (2015), Aggressive or partnership strategy: Which choice is better for the national brand?, International Journal of Production Economics, Vol. 166, PP. 50–63.

Aust G., Buscher U. (2012), Vertical cooperative advertising and pricing decisions in a manufacturer–retailer supply chain: A game-theoretic approach, European Journal of Operational Research, Vol. 223(2), PP. 473–482.

Aust G., Buscher U. (2015), Cooperative advertising models in supply chain management: A review, European Journal of Operational Research, Vol. 234, PP. 1–14.

Bergen M., John G. (1997), Understanding cooperative advertising participation rates in conventional channels, Journal of Marketing Research, Vol. 34(3), PP. 357–369.

Berger P.D. (1972), Vertical cooperative advertising ventures, Journal of Marketing Research, Vol. 9(3), PP. 309–312.

Chen K., Xiao T. (2009), Demand disruption and coordination of the supply chain with a dominant retailer, European Journal of Operational Research, Vol. 197(1), PP. 225-234. 

Chen T. (2015), Effects of the pricing and cooperative advertising policies in a two-echelon dual-channel supply chain, Computers & Industrial Engineering, Vol. 87, PP. 250–259.

Chen X., Wang X. (2015), Free or bundled: Channel selection decisions under different power structures, Omega, Vol. 53, PP. 11–20.

Corbett C.J., de Groote X. (2000), A Supplier’s Optimal Quantity Discount Policy Under Asymmetric Information, Management Science, Vol. 46(3), PP. 444-450.

Dolan R.J. (1978), A normative model of industrial buyer response to quantity discounts, In: Jain, S.C. (Ed.), Research Frontiers in Marketing: Dialogues and Directions, American Marketing Association, Chicago, Vol. 23, PP. 121–125.

Gerstner E., Hess J.D. (1995), Pull promotion and channel coordination, Marketing Science, Vol.14(1),PP. 43–60.

Huang Z., Li S.X. (2001), Co-op advertising models in manufacturer–retailer supply chains: A game theory approach, European Journal of Operational Research, Vol. 135(3),PP. 527–544. 

Huang Z., Li S.X., Mahajan V. (2002), An analysis of manufacturer–retailer supply chain coordination in cooperative advertising, Decision Sciences, Vol. 33(3) PP. 469–494. 

Jeuland A., Shugan S. (1983), Managing channel profits, Marketing Science, Vol. 2(3) PP. 239–272.

Jeuland, A., Shugan, S. (1988), Channel of distribution profits when channel members from conjectures, Marketing Science, Vol. 7(2) PP. 202–210.

Jorgensen S., Sigue S.P., Zaccour G. (2001), Stackelberg leadership in a marketing channel, International Game Theory Review, Vol. 3(1) PP. 13–26.

Jorgensen S., Zaccour G. (2003), A differential game of retailer promotions, Automatica, Vol. 39(7) PP. 1145–1155.

Jogensen S., Zaccour G. (2014), A survey of game-theoretic models of cooperativeadvertising, European Journal of Operational Research, Vol. 237(1) PP. 1–14.

Li X., Wang Q. (2007), Coordination mechanisms of supply chain systems, European Journal of Operational Research, Vol. 179(1) PP. 1-16.

Malone T.W., Crowston K. (1994), The interdisciplinary study of coordination, Journal ACM Computing Surveys, Vol. 26(1) PP. 87-119.

Piana V. (2004), Consumer Decision Rules for Agent-Based Models, Economics Web Institute.

Roslow S., Laskey H.A., Nicholls J.A.F. (1993), The Enigma of Cooperative Advertising, Journal of Business & Industrial Marketing, Vol. 8(2) PP. 70-79.

Sahin F., Robinson E. (2002), Flow coordination and information sharing in supply chains: Review, implications, and directions for future research, Decision Sciences, Vol. 33(4) PP. 505–536.

Sarmah S.P., Acharya D., Goyal S.K. (2006), Buyer vendor coordination models in supply chain management, European Journal of Operational Research, Vol. 175(1) PP. 1-15.

Seyedesfahani M.M., Biazaran M., Gharakhani M. (2011), A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer–retailer supply chains, European Journal of Operational Research, Vol. 211(2) PP. 263-273. 

Somers T.M., Gupta Y., Harriot S.R. (1990), Analysis of cooperative advertising expenditures: a transfer-function modeling approach, Journal of Advertising Research, Vol. 30(5) PP. 35-49.

Szmerekovsky J., Zhang J. (2009), Pricing and two-tier advertising with one manufacturer and one retailer, European Journal of Operational Research, Vol. 193(3) PP. 904-917.

Xiao T., Yang D. (2008), Price and service competition of supply chains with risk-averse retailers under demand uncertainty, International Journal of Production Economics, Vol. 114(1) PP. 187-200.

Xie J., Neyret A. (2009), Co-op advertising and pricing models in manufacturer-retailer supply chains,Computers & Industrial Engineering, Vol. 56(4) PP. 1375-1385. 

Xie J., Wei J. (2009), Coordinating advertising and pricing in a manufacturer–retailer channel, European Journal of Operational Research, Vol.192(2) PP. 785-791.

Yue J., Austin J., Wang M., Huang Z. (2006), Coordination of cooperative advertising in a two-level supply chain when manufacturer offers discount, European Journal of Operational Research, Vol. 168(1) PP. 65–85.

Zhang W., Li Sh., Zhang D., Hou W. (2014), On the impact of advertising initiatives in supply chains, European Journal of Operational Research, Vol. 234(1) PP. 99–107.