Digital advertising spillover, online-exclusive product launches, and manufacturer-remanufacturer competition

Zhifeng Qian, Steven James Day, Joshua Ignatius, Lalitha Dhamotharan and Junwu Chai

European Journal of Operational Research, 2024, vol. 313, issue 2, 565-586

Abstract: Manufacturers launch and advertise new generations of products through e-retailers. However, this advertising effort also benefits independent remanufacturers selling the previous generation of the same product online because of product recommendation algorithms and consumer category search. Through a stylized game-theoretic model, we investigate how independent, arm’s-length, and cooperative digital advertising strategies by a manufacturer and e-retailer unintentionally displace the sales of a new product to the benefit of an independently remanufactured alternative due to digital advertising spillover. We consider the manufacturer’s and remanufacturer’s relative production costs, the degree of substitutability between the two products, and the degree to which advertising spillover from the new product to the remanufactured product occurs. Further investigating the latter issue, we also consider that the remanufacturer’s advertising may spill over to the new product’s benefit, although at a comparatively weak level. Our results explore the optimal digital advertising strategy and effort in different conditions. We give recommendations to the manufacturer to maximize profits, which sometimes, unintuitively, involves sacrificing sales quantity and wholesale price under a cooperative advertising strategy to reduce advertising expenditures that would otherwise significantly benefit the remanufacturer’s product. A numerical analysis shows our findings to be robust and in an extension we explore the scenario that the manufacturer possesses its own direct channel.

Keywords: OR in marketing; Advertising spillover; Remanufacturing; Cooperative advertising (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221723006732
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:313:y:2024:i:2:p:565-586

DOI: 10.1016/j.ejor.2023.08.045

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().