Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs

Quaderni DSE Working Paper N° 874

32 Pages Posted: 28 Mar 2013  

Luca Lambertini

University of Bologna - Department of Economics

Date Written: March 27, 2013

Abstract

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.

Keywords: marketing channel, vertical relations, vertical integration, advertising

JEL Classification: L21, M31, M37

Suggested Citation

Lambertini, Luca, Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs (March 27, 2013). Quaderni DSE Working Paper N° 874. Available at SSRN: https://ssrn.com/abstract=2240205 or http://dx.doi.org/10.2139/ssrn.2240205

Luca Lambertini (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39 051 2092600 (Phone)
+39 051 2092664 (Fax)

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