Research On Supply Chain Cooperative Advertising With Retailer’s Fairness Concerns

With the rapid development of economy, market competition becomes unprecedentedly fierce today. In order to meet the challenge and to occupy a position in the market, companies should cooperate with other companies. The current competition is not only price competition, but also non-price competition. The cooperative advertising between manufacturers and retailers in the supply chain is one of the latter, which has been favored by the enterprises in the marketing activities. Scholars also have a strong interest in the study of cooperative advertising, but most of the studies are based on the assumption that the decision-makers are perfectly rational. With the rise of behavioral research, scholars have found that decision-makers in real life have a tendency to fairness concern, that is, pay attention to fairness. The decision is not a traditional target of profit maximization, but a target of utility of fairness concern maximization. Based on this, this thesis studies the impact of retailer’s fairness concern on the cooperative advertising program between the manufacturers and retailers, such as manufacturer’s cooperative advertising rate, the level of advertising effort, retail prices etc. Studies in this article on two aspects of cooperative advertising are as follows:In the first part, this thesis studies the effects of retailer’s fairness concern on the cooperative advertising in a supply chain composed by a manufacturer and a retailer. Three game models on cooperative advertising in this part have been studied, that is, Manufacturer stackelberg Game, manufacturer and retailer Nash equilibrium game, Retailer stackelberg Game. The optimal decision, manufacturer’s profit and retailer’s utility are derived respectively. Then we found some relationship between the retailer’s fairness concern and optimal decisions. Finally, by comparing the optimal decision in three models, we get several conclusions:The level of advertising effort and manufacturer’s profit are the highest when the manufacturer is the market leader, while the lowest when the retailer is the market leader. Product retail price is the highest when the manufacturer is the market leader, while the lowest price changes with the change of the retailer’s fairness concern and the change of the advertising cost between Nash market and retailer-lead market. Manufacturer’s cooperative advertising rate is the highest when the manufacturer is the market leader. Retailer’s utility is the highest when the retailer is the market leader, while the lowest retailer’s utility changes with the change of the retailer’s fairness concern and the change of the advertising cost between Nash market and manufacturer-lead market.In the second part, this thesis studies the effects of retailers’fairness concerns on the cooperative advertising in a supply chain composed by a manufacturer and two retailers. Three hypotheses are proposed in this part, they are as follows:None of the retailers has the tendency to fairness concern.One of the retailers has the tendency to fairness concern.Both of the retailers have the tendency to fairness concern. Two game models on cooperative advertising in three hypotheses have been studied, namely, Manufacturer stackelberg Game, manufacturer and retailer Nash equilibrium game.By comparing the optimal decision in two models, we get several conclusions:The level of retailer’s advertising effort, manufacturer’s cooperative advertising rate and manufacturer’s profit are higher when the manufacturer is the market leader. Under the hypothesis 1, the comparison of retailer’s utility is related to their respective marginal profit and competition intensity.Under the hypothesis 2,a.the comparison of utility of retailer without fairness concern is related to competition intensity and the degree of fairness concern.when the retailer’s fairness concern is at a certain degree, the more extreme degree of market competition,the retailers utility under Stackelberg game is higher; When the competitive environment is not so extreme,retailer’s utility in the Nash game is higher. b.the comparison of utility of retailer with fairness concern is related to competition intensity and the degree of fairness concern. Retailer’s utility is higher in the Stackelberg game when the competition among retailers is fierce or more relaxed.Retailer’s utility is higher in the Nash game if the retailer is moderate in the degree of competition. Under the hypothesis 3, Retailer’s utility in Stackelberg game is higher when the degree of retailers’fairness concern is low. Retailer’s utility in Nash game is higher when the degree of retailers’fairness concern is high.