Coordination of a Supply Chain with Advertising Investment and Allowing the Second Ordering

Abstract

This paper develops a game theoretic model of a one-manufacturer and one-retailer supply chain allowing the second ordering to investigate how to coordinate the order quantity and advertising investment via a markdown money-cooperative advertising contract. We focus on the effects of allowing the second ordering on equilibrium outcome and coordination mechanism. We find: the relationship between the unit wholesale prices and the chargeback rate depends on whether allowing the second ordering; the coordination mechanism is robust to demand uncertainty; the unit wholesale price in period 2 increases with the unit production cost in period 2, the unit delayed delivery cost and unit salvage value if and only if the chargeback rate is sufficiently small while that in period 1 is independent of them. In addition, we study the Pareto condition of coordination mechanism under which both manufacturer and retailer are better off using the coordination mechanism and find that the unit production costs in different periods may have contrary effects on the bounds of Pareto range.