The purpose of this study is to design incentives for price and advertising coordination in a bilateral monopoly. I prove that a wholesale price reduction and a cooperative advertising program allow a decentralized channel to reach the performance of a vertically integrated one. I identify the coordinating wholesale price regions where (i) the Stackelberg manufacturer is interested in their implementation (ii) they are Pareto-improving. I then compute the optimal coordination wholesale price resulting from an egalitarian sharing of the profit surplus.
Published March 2018 , 14 pages