Title: Optimal pricing and advertising competition in two supply chains with deterministic demand

Authors: Zhongkai Xiong, Jiajia Nie

Addresses: College of Economy and Business Administration, Chongqing University, Chongqing 400044, PR China. ' College of Economy and Business Administration, Chongqing University, Chongqing 400044, PR China

Abstract: In this paper, the impact of advertisement on the competitiveness of supply chains is examined with a price and advertising sensitive linear deterministic demand. Within the two supply chains investigated, two retailers compete for supply to customers and two manufacturers compete for advertisement. The pricing and the advertising level decisions in the system are analysed by two two-stage Stackelberg games with different decision rights designated to the parties involved. The manufacturers first set the advertising levels. Then, the retailers choose the retail prices simultaneously and independently. The retail price equilibrium and the advertising level equilibrium are characterised in centralised supply chain and in decentralised supply chain. Also, this paper shows how the optimal retail prices and advertising levels change with system parameters. In the system, there is an optimal degree of demand substitution, which minimises the manufacturer|s advertising investment cost. Moreover, as retailer 1|s market potential increases, the average advertising level decreases in the industry.

Keywords: supply chain management; SCM; optimal pricing; competition; optimal advertising levels; deterministic demand; Stackelberg game; Nash equilibrium; advertisement; supply chain competitiveness; optimal retail prices; centralised supply chains; decentralised supply chains.

DOI: 10.1504/IJMTM.2009.023935

International Journal of Manufacturing Technology and Management, 2009 Vol.17 No.3, pp.289 - 314

Published online: 21 Mar 2009 *

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