Cooperative Advertising and Pricing in a Supply Chain: A Bi-level Programming Approach

Document Type : Research Paper

Authors

1 School of Industrial Engineering, College of Engineering, University of Tehran, Tehran, Iran

2 School of Industrial Engineering, College of Engineering, University of Tehran

Abstract

Nowadays, coordination between members in a supply chain has become very important and beneficial to channel members. Through cooperative advertising, manufacturers and retailers can jointly participate in promotional programs. This action not only reduces the cost of advertising, but also is important to create a link with local retailers in order to increase immediate sales at the retail level. In this article, the problem of cooperative advertising and pricing decisions in a multi-product manufacturer-retailer (oligopoly market) supply chain is investigated. Stackelberg game with leadership of the manufacturer is proposed to model the problem. In order to find optimal prices and advertising expenditure, the bi-level programming approach is implemented. Solutions for the first level are determined by a genetic algorithm and best responses of retailers to the generated solutions of the manufacturer are calculated by CPLEX. Finally, numerical experiments and sensitivity analysis are conducted in order to assess the efficiency of models and solution procedures. Results show that competition will lead to a lower retail price, which is preferable from the consumers’ point of view. Also, profit of the manufacturer and retailers will decrease if competition effect increases.

Keywords

References

 Ahmadi‐Javid, A., & Hoseinpour, P. (2015). Cooperative advertising in a capacitated manufacturer–retailer supply chain: a game‐theoretic approach. International Transactions in Operational Research.
Alaei, S., & Setak, M. (2016). Supply chain coordination via a two-way cooperative advertising contract considering competing retailers. Scientia Iranica. Transaction E, Industrial Engineering, 23: 2330.
Amir Farshbaf-Geranmayeh, M. R., & Taleizadeh, A. A. (2017a). Cooperative advertising in a closed-loop supply chain to encourage customers to return their used products. International Journal of Inventory Research.
Amir Farshbaf-Geranmayeh, M. R., & Taleizadeh, A. A. (2017b). Cooperative advertising to induce strategic customers for purchase at the full price. International Transactions in Operational Research.
Aust, G. (2015). Vertical cooperative advertising and pricing decisions in a manufacturer-retailer supply chain: a game-theoretic approach. Vertical Cooperative Advertising in Supply Chain Management, Springer, 65-99.
Aust, G., & Buscher, U. (2014a). Cooperative advertising models in supply chain management: A review. European Journal of Operational Research, 234, 1-14.
Aust, G., & Buscher, U. (2014b). Vertical cooperative advertising in a retailer duopoly. Computers & Industrial Engineering, 72, 247-254.
Aviso, K. B., Tan, R. R., Culaba, A. B. et al. (2010). Bi-level fuzzy optimization approach for water exchange in eco-industrial parks. Process Safety and Environmental Protection, 88, 31-40.
Bashiri, M., & Geranmayeh, A. F. (2011). Tuning the parameters of an artificial neural network using central composite design and genetic algorithm. Scientia Iranicai, 18, 1600-1608.
Borrell Associates Report (2015). The Changing Face Of Co-Op Programs.
Chaab, J., & Rasti-Barzoki, M. (2016). Cooperative advertising and pricing in a manufacturer-retailer supply chain with a general demand function; A game-theoretic approach. Computers & Industrial Engineering, 99, 112-123.
Colson, B., Marcotte, P., & Savard, G. (2007). An overview of bilevel optimization. Annals of operations research, 153, 235-256.
Fang, S., Guo, P., Li, M. et al. (2013). Bilevel multiobjective programming applied to water resources allocation. Mathematical Problems in Engineering.
Jenabi, M., Ghomi, S. M. T. F., & Smeers, Y. (2013). Bi-level game approaches for coordination of generation and transmission expansion planning within a market environment. IEEE Transactions on Power systems, 28, 2639-2650.
Jørgensen, S., Sigue, S. P., & Zaccour, G. (2000). Dynamic cooperative advertising in a channel. Journal of retailing, 76, 71-92.
Jørgensen, S., Taboubi, S., & Zaccour, G. (2001). Cooperative advertising in a marketing channel. Journal of Optimization Theory and Applications, 110, 145-158.
Jørgensen, S., Taboubi, S., & Zaccour, G. (2003). Retail promotions with negative brand image effects: Is cooperation possible? European Journal of Operational Research, 150, 395-405.
Jørgensen, S., Taboubi, S., & Zaccour, G. (2006). Incentives for retailer promotion in a marketing channel. Advances in Dynamic Games. Springer, 365-378.
Jørgensen, S., & Zaccour., G. (2014). A survey of game-theoretic models of cooperative advertising. European Journal of Operational Research, 237, 1-14.
Karray, S., & Surti, C. (2016). Channel coordination with quantity discounts and/or cooperative advertising. International Journal of Production Research, 54, 5317-5335.
Karray, S. & Zaccour, G. (2005). A differential game of advertising for national and store brands. Dynamic games: theory and applications. Springer, 213-229.
Karray, S., & Zaccour, G. (2007). Effectiveness of coop advertising programs in competitive distribution channels. International Game Theory Review, 9, 151-167.
Li, Q., & Liu, Z., (2015). Supply chain coordination via a two-part tariff contract with price and sales effort dependent demand. Decision Science Letters, 4, 27-34.
Marchi, E., & Cohen, P. A. (2009). Cooperative advertising: A biform game analysis. Institute for Mathematics and its Applications, University of Minnesota—IMA Preprint Series (2261), http://​ www.​ ima.​ umn.​ edu/​ preprints/​ jun2009 2261.
Marcotte, P. & Savard, G. (2005). Bilevel programming: A combinatorial perspective. Graph theory and combinatorial optimization. Springer, 191-217.
Martín-Herrán, G., & Sigué, S. P. (2017). An integrative framework of cooperative advertising: Should manufacturers continuously support retailer advertising? Journal of Business research, 70, 67-73.
Mirzaee, M., Makui, A., & Tavakoli, E. (2012). Supply chain coordination under retail competition and advertising dependent demand. International Journal of Industrial Engineering Computations, 3, 383-392.
Rabbani, M., Habibnejad-Ledari, H., Rafiei, H., et al. (2016). A bi-objective mathematical model for dynamic cell formation problem considering learning effect, human issues, and worker assignment. Scientia Iranica. Transaction E, Industrial Engineering, 23, 2341.
Sadigh, A. N., Mozafari, M., & Karimi, B. (2012). Manufacturer–retailer supply chain coordination: A bi-level programming approach. Advances in Engineering Software, 45, 144-152.
SeyedEsfahani, M. M., Biazaran, M., & Gharakhani, M. (2011). A game theoretic approach to coordinate pricing and vertical co-op advertising in manufacturer–retailer supply chains. European Journal of Operational Research, 211, 263-273.
Sun, H., Gao, Z., & Wu, J. (2008). A bi-level programming model and solution algorithm for the location of logistics distribution centers. Applied mathematical modelling, 32, 610-616.
Taheri, M., Sedghi, S., & Khoshalhan, F. (2015). Coordinating a decentralized supply chain with a stochastic demand using quantity flexibility contract: a game-theoretic approach. Journal of Quality Engineering and Production Optimization, 1, 19-32.
Taleizadeh, A. A., & Charmchi, M. (2015). Optimal advertising and pricing decisions for complementary products. Journal of Industrial Engineering International, 11, 111-117.
Wang, S. D., Zhou, Y. W., Min, J. et al. (2011). Coordination of cooperative advertising models in a one-manufacturer two-retailer supply chain system. Computers & Industrial Engineering, 61, 1053-1071.
Xie, J., & Neyret, A. (2009). Co-op advertising and pricing models in manufacturer–retailer supply chains. Computers & Industrial Engineering, 56, 1375-1385.
Xie, J., & Wei, J. C. (2009). Coordinating advertising and pricing in a manufacturer–retailer channel. European Journal of Operational Research, 197, 785-791.
Yang, J., Xie, J., Deng, X. et al. (2013). Cooperative advertising in a distribution channel with fairness concerns. European Journal of Operational Research, 227, 401-407.
Yu, Y., & Huang, G. Q. (2010). Nash game model for optimizing market strategies, configuration of platform products in a Vendor Managed Inventory (VMI) supply chain for a product family. European Journal of Operational Research, 206, 361-373.
Zegordi, S. H., & Mokhlesian, M. (2015). Coordination of pricing and cooperative advertising for perishable products in a two-echelon supply chain: A bi-level programming approach. Journal of Industrial and Systems Engineering, 8, 38-58.
Zhang, H., & Zhang, Q. J. (2016). Co-op advertising models in one manufacturer-two retailers supply chains with spillover effect. International Journal of Computational Science and Engineering, 13, 197-208.
Zhang, J., Xie, J., & Chen, B. (2013). Cooperative advertising with bilateral participation. Decision sciences, 44: 193-203.
Journal of Quality Engineering and Production Optimization
Volume 3, Issue 2
November 2018
Pages 11-26

Files

Share

How to cite

Statistics