Market structure and cooperative advertising (original) (raw)

Coop Advertising Programs Under Competitive Market Structures

2003

We examine whether cooperative advertising programs could constitute an effective tool to coordinate competitive marketing channels. While previous studies showed that such programs increase total channel profits in bilateral monopolies, no evidence of such a result has been provided for channels where competition is present at manufacturing and/or retailing levels. In this paper, we consider a distribution channel formed of two manufacturers and two retailers and propose a model that accounts for brand and store competitive interactions. The efficiency of the coop plan is investigated by comparing Nash equilibria of two non-cooperative games; one where manufacturers do not offer any promotional support to the retailers, and one where manufacturers do offer such a support. We show that when competition is introduced at a channel level, the efficiency of the coop program is no more guaranteed for members who operate at that level. Further, for symmetric channel members, we find that cooperative advertising programs are indeed implemented only under some conditions on brand and store substitution rates. Finally, for all competitive scenarios, we show that cooperative programs are optimal for consumers.

Retail competition and cooperative advertising

2011

We consider a cooperative advertising channel consisting of a manufacturer selling its product through a retailer in competition with another independent retailer. The manufacturer subsidizes its retailer's advertising only when a certain threshold is positive. Moreover, the manufacturer's support for its retailer is higher under competition than in its absence.

Cooperative advertising in a dynamic retail market duopoly

2010

Abstract: Cooperative advertising is an important incentive offered by a manufacturer to influence retailers' promotional decisions. We analyze a retail market duopoly where one or both of competing retailers are supported by the manufacturer in their advertising costs.

Vertical Cooperative Advertising with Substitute Brands

Journal of Applied Mathematics, 2013

Cooperative (co-op) advertising is attracting more and more attention. This paper analyzes co-op advertising behavior based on a dual-brand model with a single manufacturer and a single retailer, and some interesting conclusions are achieved. Firstly, the firm in the supply chain advertises both brands, and the difference of advertising expenditure is not very large in equilibrium. Secondly, the retailer's advertising and the manufacturer's participation ratios depend on both the retailer's and the manufacturer's marginal profits. Thirdly, the stimulating effect increases the advertising investment while the competition effect decreases it, but they have no effect on the manufacturer's participation ratio. Fourthly, co-op advertising is more sensitive to the manufacturer's marginal profits than those of the retailer. Lastly, total advertising investment and profit are greater under cooperative decision than under Stackelberg decision.

Advertising, Product Differentiation and Cooperation

SSRN Electronic Journal, 2000

Collaboration among sizeable competitors is usually considered to be harmful to social welfare while competition among such competitors is perceived the better, or even best, mode of operation. We examine industries where the goods produced are homogeneous and producers employ advertising in order to artificially differentiate the products in the eyes of customers.

Dynamic cooperative advertising under manufacturer and retailer level competition

European Journal of Operational Research

We study dynamic cooperative advertising decisions in a market that consists of a finite number of independent manufacturers and retailers. Each manufacturer sells its product through all retailers and can offer different levels of advertising support to the retailers. Each retailer sells every manufacturer's product and may choose to carry out a different amount of local advertising effort to promote the products. A manufacturer may offer to subsidize a fraction of the local advertising expense carried out by a retailer for its product, and this fraction is termed as that manufacturer's subsidy rate for that retailer. We model a Stackelberg differential game with manufacturers as leaders and retailers as followers. A Nash game between the manufacturers determines their subsidy rates for the retailers and another Nash game between the retailers determines their optimal advertising efforts for the products they sell in response to manufacturers' decisions. We obtain optimal policies in feedback form. In some special cases, we explicitly write the incentives for coop advertising as functions of different model parameters including the number of manufacturers and retailers, and study the impact of the competition at the manufacturer and the retailer levels. We analyse the profits of the players and find the model parameters under which a manufacturer benefits from a coop advertising program. Furthermore, in the case of two manufacturers and two retailers, we study the effect of various model parameters on all four subsidy rates. We also extend our model to include national level advertising by the manufacturer.

Cooperative advertising with two local advertising options in a retailer duopoly

Scientia Iranica

This paper considers the issue of cooperative advertising with local advertising options in a channel with three players, including a manufacturer and two retailers. The current study, expands the cooperative advertising literature to a case where there exist two options for local advertising investment. Moreover, this paper compares two cases of presence and absence of cooperative advertising, which has almost been neglected in cooperative advertising literature. The purpose is to determine equilibrium strategy of retailers' advertising options, players' advertising expenditures and the manufacturer' participation rates on retailers' investment. The aforementioned problem is analyzed as a three-stage game, using backward induction. In the first and second stages, advertising investments of players are determined analytically. Then, in the third stage, the Nash equilibrium pair of advertising options can be found using numerical study. The problem is solved using illustrative examples in two cases of presence and absence of the cooperative advertising contract. Finally, the conditions for which offering the contract is win-win for all players, are identified. A Sensitivity analysis has been carried out to explain the efficacy of the model.

Cooperative advertising in a marketing channel

2001

This paper examines dynamic advertising and promotion strategies in a marketing channel where the retailer promotes the manufacturer product and the manufacturer spends on advertising to build a stock of goodwill. We assume that sales depend on goodwill and promotion activities and that there are decreasing marginal returns to goodwill. Two scenarios are studied. First, the manufacturer and retailer determine noncooperatively their respective strategies. Second, the game is played à la Stackelberg with the manufacturer as the leader who supports partially the cost of the promotion activities of the retailer. In both cases, stationary Markovian strategies are characterized. These scenarios are examined also in the absence of decreasing marginal effect of goodwill on sales. The results show that, whether or not the goodwill stock has a decreasing marginal effect on sales, the cooperative advertising program is a coordinating mechanism in the marketing channel, i.e., both players receive higher payoffs.

Effect of isoelastic form of price dependent demand in cooperative advertising

2015

This is an extension of the cooperative advertising model developed earlier by the authors. We develop a manufacturer-retailer channel co ordination where the demand is modeled as a multiplicative effect of price and an additive sales response function. We change the form of demand here as an extension to earlier model developed by the authors .We use isoelastic form of the price dependent demand instead of the linear form to observe changes in the model if any. We develop both sequential and simultaneous moves non cooperative game structures where both retailer and manufacturer act simultaneously and independently and compare them through propositions. Finally we develop a cooperative model and discuss the optimality of pareto efficient scheme.