Nash Equilibria of Co-Operative Advertising Programs with Advertising Threshold Effects

Qinglong Gou (), Juzhi Zhang, Juan Zhang and Liang Liang
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Qinglong Gou: University of Science & Technology of China, Hefei, Anhui 230026, P. R. China
Juzhi Zhang: University of Science & Technology of China, Hefei, Anhui 230026, P. R. China
Juan Zhang: University of Science & Technology of China, Hefei, Anhui 230026, P. R. China
Liang Liang: University of Science & Technology of China, Hefei, Anhui 230026, P. R. China

International Journal of Information Technology & Decision Making (IJITDM), 2017, vol. 16, issue 04, 981-1004

Abstract: As an important advertising phenomenon which has been proven by previous empirical marketing research, the advertising threshold effect implies that advertising has little effect on sales when advertising investment is beneath a certain level. In this paper, we focus on a cooperative advertising program, in which a manufacturer shares part of its retailer’s advertising cost, to illustrate the impact of the advertising threshold effect. Dividing the advertisement efforts into national and local advertising, we propose a new advertising response model which can describe the advertising threshold effect well. Based on the advertising response function, we derive the manufacturer’s and the retailer’s equilibrium advertising investments when they play a Nash game. From the analysis we find that there are four possible Nash equilibria when we take the advertising threshold effect into account. We derive the sufficient and necessary conditions under which each of the four possible equilibria is a Nash equilibrium, and explain these conditions with examples from practice. Another interesting result is that there are two different equilibria when certain conditions are satisfied.

Keywords: Advertising threshold effect; cooperative advertising program; game theory; supply chain management (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219622014400045

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