With the development of E-commerce, an increasing number of online platforms are conducting advertising campaigns to expand their sales. In some situations, the manufacturer is willing to share the advertising cost, while in others it is not. Additionally, recently, many online platforms have started choosing an agency contract, instead of a wholesale contract, to obtain a predetermined proportion of revenue from the manufacturer to make profits. This paper studies a scenario of a manufacturer selling through both a direct channel and a platform channel to investigate the interaction between a manufacturer’s cooperative advertising strategy and a platform’s distribution contract choice. We develop a stylized model based on game theory to drive the optimal prices and advertising level under different contracts. By using a representative consumer function, we drive the following interesting results. Firstly, under the wholesale contract, a manufacturer prefers cooperating only when the cost-sharing rate is small, but under an agency contract, when the revenue-sharing rate is large, the manufacturer will not choose to cooperate even if the cost-sharing rate is low. Secondly, the platform’s profit does not always increase in the revenue-sharing rate. Finally, under some conditions, the platform would prefer that the manufacturer not share the cost. Specifically, when the competition intensity is small and the revenue-share rate is high, the platform would rather choose an agency contract to cover all advertising costs on its own than a wholesale contract where the manufacturer is willing to share advertising costs. We also consider direct channel advertising as well in an extension, and the qualitative results still hold.
Keywords: Cooperative advertising, supply chain contract, agency model, game theory
@article{RO_2022__56_3_1655_0,
author = {Li, Jingyan and Ji, Xiang and Chen, Zhixin and Wu, Jie},
title = {How cooperative advertising interacts with distributional contracts in a dual-channel system},
journal = {RAIRO. Operations Research},
pages = {1655--1684},
year = {2022},
publisher = {EDP-Sciences},
volume = {56},
number = {3},
doi = {10.1051/ro/2022081},
mrnumber = {4445957},
zbl = {1493.90026},
language = {en},
url = {https://www.numdam.org/articles/10.1051/ro/2022081/}
}
TY - JOUR AU - Li, Jingyan AU - Ji, Xiang AU - Chen, Zhixin AU - Wu, Jie TI - How cooperative advertising interacts with distributional contracts in a dual-channel system JO - RAIRO. Operations Research PY - 2022 SP - 1655 EP - 1684 VL - 56 IS - 3 PB - EDP-Sciences UR - https://www.numdam.org/articles/10.1051/ro/2022081/ DO - 10.1051/ro/2022081 LA - en ID - RO_2022__56_3_1655_0 ER -
%0 Journal Article %A Li, Jingyan %A Ji, Xiang %A Chen, Zhixin %A Wu, Jie %T How cooperative advertising interacts with distributional contracts in a dual-channel system %J RAIRO. Operations Research %D 2022 %P 1655-1684 %V 56 %N 3 %I EDP-Sciences %U https://www.numdam.org/articles/10.1051/ro/2022081/ %R 10.1051/ro/2022081 %G en %F RO_2022__56_3_1655_0
Li, Jingyan; Ji, Xiang; Chen, Zhixin; Wu, Jie. How cooperative advertising interacts with distributional contracts in a dual-channel system. RAIRO. Operations Research, Tome 56 (2022) no. 3, pp. 1655-1684. doi: 10.1051/ro/2022081
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