Cooperative advertising with two local advertising options in a retailer duopoly

This paper investigates cooperative advertising with local advertising options in a channel with three players including a manufacturer and two retailers. The current study applied the cooperative advertising literature to a case with two options for local advertising investment. To this end, this paper compared two cases of the presence and absence of cooperative advertising, which has almost been neglected in the cooperative advertising literature. The objective of this study is to determine the equilibrium strategy of the retailers' advertising options, players' advertising expenditures, and manufacturers' participation rates on retailers' investment. The aforementioned problem was analyzed as a three-stage game using backward induction. In the first and second stages, advertising investments of players were analytically determined. In the third stage, the Nash equilibrium pair of advertising options was found through numerical studies. The problem was solved by illustrative examples in two cases of the presence and absence of the cooperative advertising contract. Finally, the conditions for which offering the contract was win-win for all players were identied. Sensitivity analysis was carried out to explain the efficacy of the model.