This paper aims to provide an answer to the still open question, namely who should, if any, lead a marketing channel? To achieve this objective, we consider a channel consisting of one manufacturer and one retailer where each player controls his advertising rate and margin. Given the fact that advertising has a carry over effect on demand, we adopt a dynamic model. Nash and Stackelberg equilibria, with in turn manufacturer and retailer is leader, are characterized and outcomes compared to the efficient coordinated solution. Our finding suggests that manufacturer's leadership reduces inefficiency in channel and is more beneficial to consumer. Our prescription is thus the manufacturer should lead.
Published April 1999 , 25 pages