A Mathematical Model of Cooperative Advertising and Subsidy Transfer Strategies

This work uses game theory to consider cooperative advertising in a supply chain involving a manufacturer, a retailer, and a distributor. The manufacturer who is the channel leader plays aStackelberg game with the other channel members. While the distributor is the first follower (or second leader), the retailer is the second follower. The channel structure involves a situation where only the retailer engages in advertising, while the manufacturer is indirectly involved through subsidy, which may be transferred to the retailer via the distributor. It considers a four-game scenario: where there is no subsidy; where the provided subsidy is not transferred to the retailer; where the distributor personally subsidizes retail advertising; and where the manufacturer's provided subsidy is transferred to the retailer. The work shows that of these four equilibrium situations, the channel performs better with the transfer of the provided subsidy to the retailer.