Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs
University of Bologna - Department of Economics
March 27, 2013
Quaderni DSE Working Paper N° 874
Zaccour (2008) investigates the behaviour of a marketing channel where firms invest in advertising to increase brand equity, showing that an exogenous two-part tariff cannot be used to replicate the vertically integrated monopolist’s performance. I revisit the same model proving the existence of a multiplicity of franchising contracts taht can do the job. In particular, I set out by illustrating an optimal two-part tariff specified as a linear function of the upstream firm’s advertising effort, performing this task both in the static and in the dynamic game. Then, I show that an analogous result emerges (i) in the static game by writing the fixed component of the two-part tariff as a non-linear function of the manufacturer’s advertising effort; and (ii) by using a contract which is linear in the brand equity, in the dynamic case.
Number of Pages in PDF File: 32
Keywords: marketing channel, vertical relations, vertical integration, advertising
JEL Classification: L21, M31, M37
Date posted: March 28, 2013
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