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Channel Coordination with Cooperative Advertising Considering Effect of Advertising on Willingness to Pay

Author

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  • Amir Farshbaf-Geranmayeh

    (University of Tehran
    GERAD, HEC Montreal)

  • Masoud Rabbani

    (University of Tehran)

  • Ata Allah Taleizadeh

    (University of Tehran)

Abstract

In this paper, cooperative advertising in a manufacturer–retailer supply chain is studied. Advertising can enhance willingness to pay (WTP) of customers. This trade-off between the benefits of increasing WTP of customers and the advertising expenditure is a key to understanding the retailers optimal advertising decision. On the other hand, it is interesting to understand in which condition supporting the retailer for his advertising expenditure is beneficial for the manufacturer. In this study, in order to capture pricing and advertising strategies of the channel member, three non-cooperative games including Nash, Stackelberg retailer and Stackelberg manufacturer game-theoretic models are established. In spite of the related studies which restrict price in order to prevent negative demand, the proposed model allows channel members to increase their prices by enhancing WTP of customers. In this study, contrary to similar additive form demand functions applied in the co-op ad literature which limits their studies for cases that profit function is concave with respect to variables, optimal prices and advertising strategies are obtained for all the solution space. Surprisingly for the very high values of the advertising effect coefficient, a finite optimal advertising expenditure is achieved.

Suggested Citation

  • Amir Farshbaf-Geranmayeh & Masoud Rabbani & Ata Allah Taleizadeh, 2018. "Channel Coordination with Cooperative Advertising Considering Effect of Advertising on Willingness to Pay," Journal of Optimization Theory and Applications, Springer, vol. 176(2), pages 509-525, February.
    • Handle: RePEc:spr:joptap:v:176:y:2018:i:2:d:10.1007_s10957-018-1217-5
    DOI: 10.1007/s10957-018-1217-5
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    References listed on IDEAS

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    Cited by:

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    2. Ma, Shigui & He, Yong & Gu, Ran, 2021. "Joint service, pricing and advertising strategies with tourists’ green tourism experience in a tourism supply chain," Journal of Retailing and Consumer Services, Elsevier, vol. 61(C).
    3. Farshbaf-Geranmayeh, Amir & Zaccour, Georges, 2021. "Pricing and advertising in a supply chain in the presence of strategic consumers," Omega, Elsevier, vol. 101(C).
    4. Tang, Xiaoying & He, Yong & Salling, Melissza, 2021. "Optimal pricing and production strategies for two manufacturers with industrial symbiosis," International Journal of Production Economics, Elsevier, vol. 235(C).

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