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A game theoretical study of cooperative advertising with multiple retailers in a distribution channel

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Abstract

Extant studies of cooperative advertising mainly consider a single-manufacturer-single-retailer channel structure. This can provide limited insights, because a manufacturer, in real practices, usually deals with multiple retailers simultaneously. In order to examine the impact of the retailer’s multiplicity on channel members’ decisions and on total channel efficiencies, this paper develops a multiple-retailer model. In this model, the manufacturer and the retailers play a Stackelberg game to make the optimal advertising decisions. Based on the quantitative results, it is observed that: 1) When there are multiple symmetric retailers, as the number of retailers scales up, the manufacturer’s national advertising investment contributes increasingly to add to channel members’ profits in equilibrium, but the total channel efficiency deteriorates quickly and converges down to a certain value; 2) When there are multiple asymmetric retailers, the distribution channel suffers from the manufacturer’s uniform participation strategy due to the retailer’s free-riding, and benefits with the manufacturer’s retailer-specific participation strategy. This study derives equilibrium solutions in closed form for all games considered and measures explicitly the gains/losses of channel efficiencies under different game settings.

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Authors and Affiliations

  1. Department of Mathematical Sciences, Tsinghua University, Beijing, 100084, China

    Jihua Zhang & Jinxing Xie

Authors
  1. Jihua Zhang
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  2. Jinxing Xie
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Correspondence to Jihua Zhang.

Additional information

This research was partially supported by the Natural Science Foundation of China (Grant No.70971072 and No. 71031005).

Jihua Zhang is a PhD candidate at the Department of Mathematical Sciences, Tsinghua University, Beijing, China. He received his BSc degree in Applied Mathematics in 2006 from Tsinghua University, and his second BSc degree in Economics in 2009 from Peking University. His current research interests lie in the field of supply chain management and marketing.

Jinxing Xie is a professor at the Department of Mathematical Sciences, Tsinghua University, Beijing, China. He received his BSc degree in applied mathematics in 1988 and his PhD degree in computational mathematics in 1995, both from Tsinghua University. He has the experience of working at Shanghai Baoshan Steel Group as a production planning and scheduling engineer for two years (1988–1990). His current research interests lie in the field of logistics and supply chain management, and production planning and scheduling. He served at the editorial review team of Decision Sciences from 2005 to 2010, and served as the associate editor for International Journal of Applied Management Sciences since 2007. He is an executive council member of the China Society for Industrial and Applied Math since 2004 and the International Community for Teachers of Mathematical Modeling and Applications since 2005.

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Zhang, J., Xie, J. A game theoretical study of cooperative advertising with multiple retailers in a distribution channel. J. Syst. Sci. Syst. Eng. 21, 37–55 (2012). https://doi.org/10.1007/s11518-011-5165-y

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