Cooperative Advertising in a Marketing Channel

S. Jørgensen, S. Taboubi and Georges Zaccour
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S. Jørgensen: University of Southern Denmark, Odense University
S. Taboubi: École des Hautes Études Commerciales

Journal of Optimization Theory and Applications, 2001, vol. 110, issue 1, No 7, 145-158

Abstract: Abstract 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.

Keywords: differential games; marketing channels; cooperative advertising; feedback Nash equilibria; feedback Stackelberg equilibria (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (37)

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DOI: 10.1023/A:1017547630113

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