Journal of Industrial Engineering Research in Production Systems

Journal of Industrial Engineering Research in Production Systems

A Game-Theoretic Approach to Analyze Pricing and Cooperative Advertising Decisions for Two Substitutable Products in a Supply Chain Containing Two Manufacturers and Two Sellers

Document Type : Research Paper

Author
Hamed Jafari
Assistant Professor, Industrial Engineering Group, Golpayegan College of Engineering, Isfahan University of Technology, Golpayegan, Iran
10.22084/ier.2023.27673.2122
Abstract
In the current study, the competition between two substitutable products is investigated on a supply chain containing two manufacturers and two sellers. In this structure, two substitutable products are made by two competing manufacturers and are then delivered to customers through two competing sellers. One of the manufacturers sells his products with no investment on advertising, whereas another one aims to attract more customers by investing on the advertisement level. In this setting, a cooperative advertising contract is implemented between the manufacturer and seller of the second product in which the seller undertakes a portion of the related investment. Then, the game theory is applied to make the pricing and advertising decisions under the considered problem. Note that in the previous studies, the issue of the cooperative advertising has been considered for a specific product and then the game theory has been used in order to set the decisions among its supply chain members, while in this research, two substitutable products are considered and the effect of implementing a cooperative advertising contract is investigated on their demands and the profit values of their supply chain members. Regarding the results, increasing the elasticity of the demand for a product with respect to its advertisement level leads to enhancing the profits for its members and reducing the profits for the others. Moreover, if the required budget does not exceed a specific value, then investing on the advertisement level of a product is beneficial for its members.
Keywords
Competitive Market
Supply Chain Management
Pricing
Cooperative Advertising
Game Theory
Subjects
  • Huang, M.H., Trusov, M. (2020). Customer satisfaction underappreciation: The relation of customer satisfaction to CEO compensation, International Journal of Research in Marketing, 37(1): 129-150.
  • Anton, R., Chenavaz, R.Y., Paraschiv, C. (2023). Dynamic pricing, reference price, and price-quality relationship, Journal of Economic Dynamics and Control, 146: 104586.
  • Kaur, A., Janmaat, J. (2023). Investigating the impacts of drinking water quality on house prices: A household production function approach, Water Resources and Economics, 41: 100213.
  • Zhu, G., Zhang, J., Xing, E., Han, D. (2022). Pricing and quality decisions with conspicuous consumers, Transportation Research Part E: Logistics and Transportation Review, 165: 102857.
  • Hatsumi, K., Ishii, R. (2022). The effect of price on the quality of public construction in Japan, Japan and the World Economy, 62: 101134.
  • محمدی‌زنجیرانی، داریوش (1400). تأثیر قیمت‌گذاری و تبلیغات بر رقابت بین تولیدکننده و خرده‌فروش با وجود فروش مستقیم، نشریه پژوهش­های مهندسی صنایع در سیستم­های تولید، 9: 1-15.
  • مرادی، سوسن (1400). تعیین تعداد دفعات بهینه تبلیغات و دوره سفارش‌دهی توزیع‌کننده با درنظر گرفتن محصولات دارای نقص، خطای انسانی حین بازرسی، سیاست پرداخت اعتباری دوسطحی و تقاضای وابسته به تبلیغات، نشریه پژوهش­های مهندسی صنایع در سیستم­های تولید، 9: 15-45.
  • Quach, S., Septianto, F., Thaichon, P., Nasution, R.A. (2022). The role of art infusion in enhancing pro-environmental luxury brand advertising, Journal of Retailing and Consumer Services, 64: 102780.
  • Li, M. (2022). Influence for social good: Exploring the roles of influencer identity and comment section in Instagram-based LGBTQ-centric corporate social responsibility advertising, International Journal of Advertising, 41(3): 462-499.
  • Campbell, C., Plangger, K., Sands, S., Kietzmann, J. (2022). Preparing for an era of deepfakes and AI-generated ads: A framework for understanding responses to manipulated advertising, Journal of Advertising, 51(1): 22-38.
  • Noor, U., Mansoor, M., Rabbani, S. (2022). Brand hate and retaliation in Muslim consumers: does offensive advertising matter?, Journal of Islamic Marketing, 13(6): 1395-1413.
  • De Keyzer, F., Dens, N., De Pelsmacker, P. (2022). How and when personalized advertising leads to brand attitude, click, and WOM intention, Journal of Advertising, 51(1): 39-56.
  • [Sides, J., Vavreck, L., Warshaw, C. (2022). The effect of television advertising in united states elections, American Political Science Review, 116(2): 702-718.
  • Jafari, H., Safarzadeh, S., Azad-Farsani, E. (2022). Effects of governmental policies on energy-efficiency improvement of hydrogen fuel cell cars: A game-theoretic approach, Energy, 254: 124394.
  • Jafari, H. (2019). Sustainable development by reusing of recyclables in a textile industry including two collectors and three firms: A game-theoretic approach for pricing decisions, Journal of Cleaner Production, 229: 598-610.
  • Jafari, H. (2022). Investigating environmental and economic aspects of sustainability by recycling PET plastic bottles: A game-theoretic approach, Clean Technologies and Environmental Policy, 1: 1-14.
  • SeyedEsfahani, M.M., Biazaran, M., Gharakhani, M. (2011). A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer–retailer supply chains, European Journal of Operational Research, 211(2): 263-273.
  • Li, S.X., et al. (2002). Cooperative advertising, game theory and manufacturer–retailer supply chains, Omega, 30(5): 347-357.
  • Ahmadi Javid, A., Hoseinpour, P. (2011). A game-theoretic analysis for coordinating cooperative advertising in a supply chain, Journal of Optimization Theory and Applications,149:138-150.
  • Aust, G., Buscher, U. (2012). Vertical cooperative advertising and pricing decisions in a manufacturer–retailer supply chain: A game-theoretic approach, European Journal of Operational Research, 223(2): 473-482.
  • Ghashghaei, H., Mozafari, M. (2020). A game theoretic approach to coordination of pricing, ordering, and co-op advertising in supply chains with stochastic demand, Scientia Iranica, 27(6): 3289-3304.
  • Hafezalkotob, A., Khodabakhsh, M., Saghaei, A., Eshghipour, M. (2018). Cooperation of advertising companies in social networks: A graph and game theory approaches, Computers & Industrial Engineering, 125: 212-220.
  • Chaab, J., Rasti-Barzoki, M. (2016). Cooperative advertising and pricing in a manufacturer-retailer supply chain with a general demand function; A game-theoretic approach, Computers & Industrial Engineering, 99: 112-123.
  • Malekian, Y., Rasti-Barzoki, M. (2019). A game theoretic approach to coordinate price promotion and advertising policies with reference price effects in a two-echelon supply chain, Journal of Retailing and Consumer Services, 51: 114-128.
  • Jørgensen, S., Zaccour, G. (2014). A survey of game-theoretic models of cooperative advertising, European Journal of Operational Research, 237(1): 1-14.
  • Yu, Y., Huang, G.Q., Liang, L. (2009). Stackelberg game-theoretic model for optimizing advertising, pricing and inventory policies in vendor managed inventory (VMI) production supply chains, Computers & Industrial Engineering, 57: 368-382.
  • Agrawal, D. (1996). Effect of brand loyalty on advertising and trade promotions: A game theoretic analysis with empirical evidence, Marketing science, 15(1): 86-108.
  • Shoeleh, R., Seifbarghy, M., Pishva, D. (2019). Modelling pricing, vertical co-op advertising and quality improvement in a non-cooperative three-echelon supply chain using game theory approach, RAIRO-Operations Research, 53(5): 1937-1965.
  • Zhang, H., Zhang, Q. (2018). A study of cooperative advertising in a one-manufacturer two-retailer supply chain based on the multi-stage dynamic game theory, International Journal of Computational Science and Engineering, 16: 85-97.
  • Wang, N., Zhang, T., Fan, X., Zhu, X. (2020). Game theoretic analysis for advertising models in dual-channel supply chains, International Journal of Production Research, 58(1): 256-270.
  • Yan, R., Pei, Z. (2015). The strategic value of cooperative advertising in the dual-channel competition, International Journal of Electronic Commerce, 19(3): 118-143.
  • Zarei, J., Rasti-Barzoki, M., Hejazi, S.R. (2021). A game theoretic approach for integrated pricing, lot-sizing and advertising decisions in a dual-channel supply chain, International Journal of Operational Research, 40(3): 342-365.
  • Hua, M., Lai, I.K.W., Tang, H. (2019). Analysis of advertising and a points-exchange incentive in a reverse supply chain for unwanted medications in households based on Game Theory, International Journal of Production Economics, 217: 259-268.
Journal of Industrial Engineering Research in Production Systems
Volume 11, Issue 22
September 2023
Pages 83-95