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Endogenous choice of price or quantity contract with upstream advertising

Author

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  • Qing Hu
  • Dan Li
  • Tomomichi Mizuno

Abstract

We investigate a supply chain comprising a manufacturer engaged in advertising and two retailers who compete with differentiated products. We examine the endogenous choice between competing on quantity or price for the retailers. Our analysis reveals that, depending on the level of product substitutability, the range of possible outcomes is varied and includes Cournot, Bertrand, and Cournot‐Bertrand under informative advertising. This result contradicts the established understanding that firms tend to engage in Cournot competition as their dominant strategy. Furthermore, we find that under persuasive advertising, Cournot or Bertrand outcomes may be optimal, but Cournot‐Bertrand never arises as an equilibrium.

Suggested Citation

  • Qing Hu & Dan Li & Tomomichi Mizuno, 2024. "Endogenous choice of price or quantity contract with upstream advertising," Metroeconomica, Wiley Blackwell, vol. 75(1), pages 34-51, February.
    • Handle: RePEc:bla:metroe:v:75:y:2024:i:1:p:34-51
    DOI: 10.1111/meca.12438
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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