Abstract

Most cooperative advertising works to date consists of only two parties: the manufacturer(s) and the retailer(s). This work uses Game theory to address the possibility of the distributor being an integral part of cooperative advertising supply chain. It thus considers a manufacturer-distributor-retailer supply channel in which the manufacturer is the Stackelberg leader, while the distributor and the retailer are the first and second followers, respectively. The players’ strategies are their prices, advertising efforts and advertising subsidy. The work uses price and demand multiplicative effect to model consumer demand, and obtains the players’ equilibrium prices, advertising strategies and payoffs. It shows that with noninvolvement of any of the players either directly or indirectly in advertising, his payoff becomes very large at the expense of the other channel members. Particularly it shows that the distributor must be either directly or indirectly involved in advertising for him to be an integral part of the supply chain.