Open AccessModelling Subsidy as a Cooperative Advertising Channel Coordination Mechanism
Author(s) -
Peter E. Ezimadu
Publication year - 2020
Publication title -
nigerian journal of basic and applied science
Language(s) - English
Resource type - Journals
eISSN - 0794-5698
pISSN - 2756-4843
DOI - 10.4314/njbas.v27i2.17
Subject(s) - stackelberg competition , subsidy , channel coordination , microeconomics , business , function (biology) , work (physics) , channel (broadcasting) , advertising , differential game , economics , marketing , supply chain , computer science , telecommunications , supply chain management , market economy , mechanical engineering , mathematical optimization , mathematics , evolutionary biology , engineering , biology
This work considers the use of subsidy as channel coordination strategy in vertical cooperative advertising in which the manufacturer is the Stackelberg game leader and the retailer is the follower. While the retailer is directly involved in advertising, the manufacturer is indirectly involved through the provision of subsidy to aid the retailer in advertising the product. The work models the demand function using a multiplicative advertising-price-demand function, and obtains the players’ prices, the retail advertising effort, the manufacturer’s subsidy rate and the payoffs. The work observes that with increasing subsidy, the manufacturer’s price margin increases while that of the retailer reduces and eventual becomes zero with total subsidy. However, the manufacturer should not totally subsidise retail advertising since it would be counterproductive for him, while at the same time would lead to very large retail payoff. Thus with appropriate subsidy strategy, the prices and the payoffs, and eventually the entire channel can be coordinated.
Keywords: Channel coordination, Vertical cooperative advertising, Stackelberg game, Advertising price-demand function, Subsidy rate.