Coordination of advertising in supply chain management with cooperating manufacturer and retailers

Abstract

Cooperative (co-op) advertising is a promotion mechanism widely used by manufacturers. In cooperative advertising, a retailer implements local advertising and a manufacturer pays a part of the costs. In the literature of cooperative (co-op) advertising, the manufacturers often act as leaders and are followed by retailers (the manufacturers have the greater power than the retailers). According to the recent studies in marketing, retailers have increased their power equal or even greater than the manufacturers in many industries over the last two decades. When both parties in the supply chain have negotiation power, they may finally agree to cooperate rather than not to cooperate with each other. Therefore, we consider coordination of cooperative advertising between one manufacturer and two retailers when their relationships are symmetric and they cooperate to increase their profits. We use the concepts of group equilibria and cooperative games to find fair allocation schemes for dividing the total profit of grand coalition among the three members.

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