Endogenous choice of price or quantity contract with upstream advertising

Qing Hu (), Dan Li () and Tomomichi Mizuno
Additional contact information
Qing Hu: Kushiro Public University of Economics
Dan Li: School of Management, Xi’an Polytechnic University

No 2301, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: We investigate a supply chain comprising a manufacturer engaged in advertising and two retailers who compete with differentiated products. We examine the endogenous choice between competing on quantity or price for the retailers. Our analysis reveals that, depending on the level of product substitutability, the range of possible outcomes is varied and includes Cournot, Bertrand, and Cournot-Bertrand under informative advertising. This result contradicts the established understanding that firms tend to engage in Cournot competition as their dominant strategy. Furthermore, we find that under persuasive advertising, Cournot or Bertrand outcomes may be optimal, but Cournot-Bertrand never arises as an equilibrium.

Keywords: Exporting; endogenous competition mode, advertising, vertical relationship (search for similar items in EconPapers)
JEL-codes: D43 L13 M21 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2023-01
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ind and nep-mic
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Journal Article: Endogenous choice of price or quantity contract with upstream advertising (2024)
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