TITLE:
Cooperative Advertising in a Two-Stage Supply Chain with Network Externalities
AUTHORS:
Wenhui Li
KEYWORDS:
Game Theory, Cooperative Advertising, Network Externalities, Two-Stage Supply Chain
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.9 No.4,
April
28,
2019
ABSTRACT: A two-stage game is developed with network externalities where, besides pricing decisions, the retailer and manufacturer can determine their advertising investments and advertising participation rates for each stage. In addition to the full cooperation advertising model, three part cooperation advertising models are established. We develop propositions and insights from the comparison of these models. Our main findings are as follows: 1) the equilibrium solutions critically depend on the effects of network externalities; 2) the optimal choice in a two-stage game is to achieve full cooperation; and 3) a second-best choice for the manufacturer is to share the retailer’s advertising in the first stage. Our research results have guiding significance for supply chain member’s decision-making in local advertising practice.