Abstract

This work considers cooperative advertising in a manufacturer-distributor-retailer supply chain. The manufacturer is the Stackelberg leader. The distributor is the first follower while the retailer is the second follower. The game structure is on a setting in which only the retailer advertises the product while the distributor and the manufacturer indirectly participate in retail advertising by providing subsidies. The work considers a four-game scenario: a situation where neither the distributor nor the manufacturer participates in retail advertising; a situation where only the distributor participates in retail advertising; a situation where only the manufacturer participates in retail advertising; and a situation where both the distributor and the manufacturer participate in retail advertising. In each of these cases the work obtains the optimal advertising strategy, the optimal subsidy (participation) strategies (rates), and the players’ payoffs. The work considers the effect of the players’ strategies on the payoffs. While the manufacturer and/or distributor’s payoff reduce(s) with increasing participation rate(s), the other players’ payoffs increase and become very large. Similarly, as the retail advertising effort increases in the absence of subsidy, the other players’ payoffs become very large, and only tend to reduce with their subsidised retail advertising effort. For any given structure a player should stick to his optimal strategy if he must not be short changed by the other players.