A GAME THEORETIC APPROACH FOR DETERMINATION OF ADVERTISING LEVEL OF A MAIN PRODUCT AND PRICING OF TWO SUBSTITUTE PRODUCTS WITH SPECIFIED PRICE OF THE

Advertising is a form of marketing efforts to promote using a product or service. Researches show that in 2015 an estimate of US$529.43 billion was spent on advertising in the world. In addition, pricing, as the part of the business's marketing plan, is the process of setting the price at which customers buy products and services. In the pricing, manufacturers consider the price at which it could acquire the goods, the market place, the manufacturing cost, competition, brand, market condition, and quality of product. Therefore, advertising and pricing are two strategic important decisions for manufactures. In the current paper, three products including one main product and two substitute products where each substitute product is the complementary product for the main product are considered. In this paper, for the first time, the problem of determining the advertising level of the main product as well as determining the pricing of the two substitute products is addressed. It is assumed that the price of the main product is constant and specified. The solution of the mentioned problem is obtained based on the Stackelberg game in which the manufacturer of the main product is the leader and the two manufacturers of the complementary products are the follower. The equilibrium solutions for the mentioned structure are obtained. Also, some sensitivity analysis of the important parameters is done and presented. The results show that the market base has no effect on the main product advertising effort. Also, the result shows that the self-price has the negative effect on the advertising effort but the cross-price has the positive effect on the advertising effort. In addition to, the results show that the main product price has the positive effect on the advertising effort that means if the main product price increases the equilibrium advertising effort will be increases.