We consider a dynamic marketing channel involving one manufacturer and one retailer. The strategic variables of the former are the wholesale price and the advertising expenditures. The retailer controls her margin. The paper aims at investigating the impact of a myopic retailer’s behavior on channel strategies and payoffs. The distinctive feature of the model is that it assumes that the retail price affects the evolution of the brand’s market potential in addition to affecting demand. Our results show that myopia leads to an increase in both players’ payoffs.
Published May 2006 , 30 pages