Cooperative Advertising in Video Game Software Marketing: A Game Theoretic Analysis of Game Software Publisher – Platform Manufacturer Dynamics

Abstract

We aim to model and analyze possible cooperative advertising strategies in the context of a gaming platform manufacturer and a game software publisher in the video game industry. The analysis takes on a game theoretic approach in understanding the impact of a video game’s total advertising budget and the co-op advertising sharing policy on each player’s preferred strategy and corresponding payoffs. Non-cooperative schemes have been demonstrated in which Stackelberg and Nash equilibriums were identified. These were compared with a cooperative Pareto efficient scheme to understand under which conditions both players would be willing to cooperate. Results show that a non-cooperative simultaneous-move game is never preferred by either player, and there exists at least one Pareto efficient solution where both players are better off than at the Stackelberg equilibrium. However, in order to reach this solution, both parties should be willing to negotiate over the co-op advertising sharing policy.