Incentive mechanism based on cooperative advertising for cost information sharing in a supply chain with competing retailers

Subject Areas : Mathematical Optimization

Mostafa Setak ¹ , Hajar Kafshian Ahar ² , Saeed Alaei ³

1 - Department of Industrial Engineering, K. N. Toosi University of Technology, Tehran, Iran|No. 17, Pardis Avenue, Mollasadra Street, Vanak Square, 1999143344, Tehran, Iran
2 - Department of Industrial Engineering, K. N. Toosi University of Technology, Tehran, Iran
3 - Department of Industrial Engineering, K. N. Toosi University of Technology, Tehran, Iran

Received: 2020-10-06 Accepted : 2020-10-06 Published : 2018-06-01

Keywords: Coordination . Information sharing . Vertical cooperative advertising . Competing retailers . Game theory,

Abstract :

This paper proposes a new motivation for information sharing in a decentralized channel consisting of a single manufacturer and two competing retailers. The manufacturer provides a common product to the retailers at the same wholesale price. Both retailers add their own values to the product and distribute it to consumers. Factors such as retail prices, values added to the product, and local advertising of the retailers simultaneously have effect on market demand. Each retailer has full information about the own added value which is unknown to the manufacturer and other retailer. The manufacturer uses a cooperative advertising program for motivating the retailers to disclose their private information. A numerical study is presented to compare different scenarios of information sharing. Computational results show that there is a condition in which full information sharing is beneficial for all members of the supply chain through cooperative advertising program and, therefore, retailers have enough incentive to disclose their cost information to the manufacturer.