Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain

28 Pages Posted: 29 Jul 2011

See all articles by Anshuman Chutani

Anshuman Chutani

University of Texas at Dallas - Naveen Jindal School of Management

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: June 7, 2011

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 in explicit form for a linear demand formulation. We investigate issues like channel coordination and anti-discriminatory legislation and also study a case when the manufacturer sells through only one retailer and the second retailer sells a competing brand.

Keywords: Cooperative advertising, Stackelberg diff erential game, Nash di fferential game, sales-advertising dynamics, feedback Stackelberg equilibrium, Durable goods

JEL Classification: C61

Suggested Citation

Chutani, Anshuman and Sethi, Suresh, Optimal Advertising and Pricing in a Dynamic Durable Goods Supply Chain (June 7, 2011). Available at SSRN: https://ssrn.com/abstract=1898309 or http://dx.doi.org/10.2139/ssrn.1898309

Anshuman Chutani

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

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