Advertising and Price Competition in a Manufacturer-Retailer Channel

International Journal of Research in Marketing (2017, Forthcoming)

57 Pages Posted: 19 Apr 2017

See all articles by Tat Chan

Tat Chan

Washington University in St. Louis - John M. Olin Business School

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School

Yeujun Yoon

Peking University - HSBC School of Business

Date Written: 2017

Abstract

We investigate how manufacturers’ advertising competition, when advertising has a dynamic impact on the goodwill that affects market demand, interacts with the price competition in a manufacturer-retailer channel. Specifically, we examine the strategic choices made by manufacturers, the role of the retailer in exacerbating or mitigating competition among manufacturers, the total channel profit and how that is split among the different players. Using prices, sales, and advertising data in the laundry detergent category we find that advertising and pricing are strategic complements as manufacturer advertising increases the price elasticity of demand; advertising competition intensifies price competition but it also improves the profitability of manufacturers; the presence of retailers in the channel leads to increased advertising spending while mitigating the extent of price competition. Manufacturers can enjoy a higher profit from using retailers when they compete in both price and advertising. Finally, we show that the emergence of ecommerce, which enables manufacturers directly selling to end consumers, has asymmetric profit impacts on manufacturers, as brands with lower cost and lower brand goodwill are more benefited from ecommerce.

Suggested Citation

Chan, Tat and Narasimhan, Chakravarthi and Yoon, Yeujun, Advertising and Price Competition in a Manufacturer-Retailer Channel (2017). International Journal of Research in Marketing (2017, Forthcoming), Available at SSRN: https://ssrn.com/abstract=2954366

Tat Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Chakravarthi Narasimhan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive, Campus Box 1133
Olin School of Business
St. Louis, MO 63130-4899
United States
314-935-6313 (Phone)
314-935-6359 (Fax)

Yeujun Yoon (Contact Author)

Peking University - HSBC School of Business ( email )

University Town
Shenzhen, 518055
China

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