Manufacturer's Promotional Support in Dynamic Retail Oligopolies

Download or read book Manufacturer's Promotional Support in Dynamic Retail Oligopolies written by Anshuman Chutani and published by . This book was released on 2011 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: Cooperative advertising is an important incentive offered by a manufacturer to influence retailers' promotional decisions. In a typical arrangement, a manufacturer agrees to reimburse a fraction of retailers' advertising expenditures in selling his product, also known as the subsidy rate offered by the manufacturer to a retailer. We study cooperative advertising in dynamic retail oligopolies where a manufacturer sells his product through multiple independent and competing retailers. We model the problems as Stackelberg differential games in which the manufacturer is the leader and announces his shares of advertising costs of the retailers or his subsidy rates, and the retailers in response play a Nash differential game in choosing their optimal advertising efforts over time. We obtain feedback equilibrium solution consisting of the optimal advertising policies of the retailers and manufacturer's subsidy rates. We identify the key drivers that determine the optimal subsidy rates and, in particular, obtain the conditions under which the manufacturer will support a retailer. We analyze the impact of retail level competition on the subsidy rates policy of the manufacturer. We study the impact of a cooperative advertising based arrangement on the profits of all the members of the supply chain and explore the extent to which cooperative advertising can coordinate the channel. We also investigate the impact of an anti-discriminatory act which would restrict the manufacturer to offer equal subsidy rates to the two retailers. We answer these questions for two different models of sales dynamics. Next, we study a case of a durable goods oligopoly in which we find the optimal wholesale price and subsidy rates policy of the manufacturer and optimal retail price and advertising policies of the retailers. We also investigate a scenario in which the manufacturer sells through only one retailer and the second retailer acts as a competitor and does contribute to the sales of the manufacturer.