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Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain

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Abstract

Cooperative advertising is an incentive offered by a manufacturer to influence retailers’ promotional decisions. We study a dynamic durable goods duopoly with a manufacturer and two independent and competing retailers. The manufacturer, as a Stackelberg leader, announces his wholesale prices and his shares of retailers’ advertising costs, and the retailers in response play a Nash differential game in choosing their optimal retail prices and advertising efforts over time. We obtain the feedback equilibrium policies for the manufacturer and the retailers in explicit form for a linear demand formulation. We investigate issues, like channel coordination and antidiscriminatory legislation, and also study a case, when the manufacturer sells through only one retailer and the second retailer sells a competing brand.

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Authors and Affiliations

  1. School of Management, Binghamton University, State University of New York, PO Box 6000, Binghamton, NY, 13902, USA

    Anshuman Chutani

  2. School of Management, The University of Texas at Dallas, Mail Station SM30, 800 W. Campbell Rd., Richardson, TX, 75080-3021, USA

    Suresh P. Sethi

Authors
  1. Anshuman Chutani
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  2. Suresh P. Sethi
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Correspondence to Suresh P. Sethi.

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Communicated by George Leitmann.

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Chutani, A., Sethi, S.P. Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain. J Optim Theory Appl 154, 615–643 (2012). https://doi.org/10.1007/s10957-012-0034-5

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  • DOI: https://doi.org/10.1007/s10957-012-0034-5

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