Research on supply chain pricing decisions considering the advertising effect under market encroachment

Abstract

Based on a Stackelberg game, this paper establishes supply chain models in which an incumbent manufacturer invests in advertising and the retailer invests in advertising when there is a new entrant manufacturer. By solving the model, the subgame perfect equilibrium under different conditions is obtained, and then the influences of the advertising coefficient and the degree of differentiation of two brands on the pricing decisions of supply chain members are investigated. The results show that: in the incumbent manufacturer advertising model, the wholesale prices and retail prices of the incumbent manufacturer and the encroaching manufacturer change as the advertising coefficient and the degree of differentiation of the two brands change. In the retailer’s advertising model, the wholesale prices, retail prices and profits of the incumbent manufacturer and the encroaching manufacturer are all higher than those of the benchmark model within the limited scope. Some valuable information could be provided for supply chain enterprises to develop collaborative strategies and promote supply chain management practices.