Cooperative advertising and coordination in a supply chain: the role of Nash bargaining fairness concerns

Abstract

This study constructs a game-theoretic model of cooperative advertising in a supply chain with Nash bargaining solutions as the fairness reference point. We use a square root response function to describe the saturation effect of advertising. We find that the retailer’s Nash bargaining fairness concerns (NBFC) improve the local advertising investment even more than the level of the centralized case. The effect of NBFC on the retailer’s profit is inverted U-shaped, rising first and then falling, and vice versa for the manufacturer. As the fairness-concerned coefficient increases from small to large, the efficiency of the supply chain changes from improvement to decline. Moreover, we find that a two-way subsidy mechanism in cooperative advertising still works on coordination although the retailer possesses NBFC. The study offers practical management insights into the operational strategies of supply chain members.