This paper studies the advertising decision regarding a supply chain with manufacturer encroachment. It is assumed that the manufacturer and the retailer have different quantity decision power so as to explore how the first-mover advantage affect the advertising decision and the manufacturer encroachment. It is known that the manufacturer encroachment usually makes the retailer worse off. Our results show that (1) the retailer can benefit from encroachment when the manufacturer’s direct selling cost is high and the manufacturer does not have first-mover advantage of quantity decision; (2) the manufacturer can benefit from encroachment if his advertising effectiveness is high; (3) the encroachment may lead to a lose-lose result if the manufacturer has the first-mover advantage and his advertising effectiveness is not relative high; (4) the manufacturer may be worse off if his direct selling cost is intermediate no matter who has the first-mover advantage of quantity decision. Thus, the manufacturer should be more careful about the relationship between him and the retailer. Additionally, we consider two ways of advertising cooperation. Results shows that which type of cooperation is better depends on the relative advertising effectiveness. Furthermore, we propose an incentive cooperative advertising scheme which makes all players get higher profits.
Decision Traps and Improvement of Decision Power
