Game theoretic analysis for advertising models in dual-channel supply chains

Abstract

In the sharing economy, it is trendy that companies share advertising resources or investments. This paper develops game-theoretic models to discuss three advertising schemes in a dual-channel supply chain consisting of a manufacturer and two competing retailers. The first is brand advertising, i.e. the manufacturer advertises solely for its branded product. The second is emerging joint advertising, i.e. the manufacturer jointly advertises for the product and the online retailer, and the online retailer shares a part of the advertising costs. We propose a third model, the cost-sharing of brand advertising, i.e. the manufacturer advertises solely for the product, and the offline retailer shares a part of the advertising costs. The valuation enhancement effect of brand advertising, and the valuation enhancement and demand shifting effects of joint advertising are recognised and examined. The results show that whether retailers should cooperate with the manufacturer on advertising depends on the consumer initial preference for channels, and the potential scale and cost-efficiency of advertising. We find that joint advertising benefits participants at the expense of harming the offline retailer due to demand shifting effect, while the cost-sharing of brand advertising may benefit all due to the valuation enhancement effect.