Vertical Cooperative Advertising with Substitute Brands: Brief Overview

Abstract

Cooperative (co-op) advertising is attracting more and more attention. This paper analyzes co-op advertising behavior based on a dual brands model with a single manufacturer and a single retailer and some interesting conclusions are achieved. Firstly, firm in the supply chain advertises both brands and the difference of advertising expenditure is not very large in equilibrium. Secondly, the retailers advertising and the manufacturers participation ratio depend on both the retailers and the manufacturers marginal profits. Thirdly, stimulating effect increases advertising investment while competition effect decreases it, but they have no effect on the manufacturers participation ratio. Fourthly, co-op advertising is more sensitive to the manufacturers marginal profits than that of the retailer. Lastly, total advertising investment and profit are greater under cooperative decision than under Stackelberg decision.