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Equilibrium Pricing and Advertising Strategies in a Marketing Channel

Author

Listed:
  • S. Jørgensen

    (Odense University)

  • G. Zaccour

    (École des Hautes Études Commerciales
    Instituto Tecnológico Autónomo de Mexico)

Abstract

This paper is concerned with conflict and coordination in a two-member channel of distribution. We propose a differential game model that includes carryover effects of advertising, expressed by a retailer-specific stock of advertising goodwill. Pricing and advertising strategies for both firms are identified under channel conflict as well as coordination. Dynamic advertising policies are designed as stationary Markov perfect strategies. In a symmetric case, these strategies can be determined in closed form, taking into consideration explicitly nonnegativity constraints on advertising rates. We establish a global result for the relationship between the advertising strategies of the two firms under conflict and coordination.

Suggested Citation

  • S. Jørgensen & G. Zaccour, 1999. "Equilibrium Pricing and Advertising Strategies in a Marketing Channel," Journal of Optimization Theory and Applications, Springer, vol. 102(1), pages 111-125, July.
    • Handle: RePEc:spr:joptap:v:102:y:1999:i:1:d:10.1023_a:1021894529093
    DOI: 10.1023/A:1021894529093
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    References listed on IDEAS

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