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

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.