Groupe d’études et de recherche en analyse des décisions

G-2003-24

Coop Advertising Programs under Competitive Market Structures

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We examine whether cooperative advertising programs could constitute an effective tool to coordinate competitive marketing channels. While previous studies showed that such programs increase total channel profits in bilateral monopolies, no evidence of such a result has been provided for channels where competition is present at manufacturing and/or retailing levels. In this paper, we consider a distribution channel formed of two manufacturers and two retailers and propose a model that accounts for brand and store competitive interactions. The efficiency of the coop plan is investigated by comparing Nash equilibria of two non-cooperative games; one where manufacturers do not offer any promotional support to the retailers, and one where manufacturers do offer such a support. We show that when competition is introduced at a channel level, the efficiency of the coop program is no more guaranteed for members who operate at that level. Further, for symmetric channel members, we find that cooperative advertising programs are indeed implemented only under some conditions on brand and store substitution rates. Finally, for all competitive scenarios, we show that cooperative programs are optimal for consumers.

, 26 pages