Cooperative Advertising in Dual Channel Supply Chain System with Different Contracting Schemes

Abstract

This paper deals with the efficacy of revenue-sharing and cost-sharing contracts in a dual-exclusive channel, in which each manufacturer announces a cooperative advertising policy, such as cost-sharing contract, revenue-sharing contract, or neither of them, to its retailer. Under such cooperative advertising schemes, two models are developed—one in which each manufacturer determines the sharing rate endogenously or exogenously under the Stackelberg game approach and the other in which each manufacturer and its exclusive retailer cooperatively determine the sharing rate under the Nash bargaining approach. Some counterintuitive findings suggest that the advertising coordination mechanism critically depends on parameters, such as the basic demand share and product substitution. Most notably, the higher sharing rate can lead the retailer’s performance to be worse, especially when the competition becomes fierce. Furthermore, the cost-sharing contract is more beneficial to the cooperative advertising mechanism than the revenue-sharing contract.