A coordination model of cooperative advertising based on revenue sharing contract

The coordination of cooperative advertising in a manufacturer-retailer supply chain is considered in this paper. In the Stackelberg competition, when the manufacturer is a leader, we found that the manufacturer won't invest in advertising, and the retailer will afford all the advertising cost. In a cooperative environment, the manufacturer and retailer work together in determining retailer price and advertising investment to achieve maximum profit for the whole chain. We proposed an appropriate coordinative method, based on revenue sharing contract, for cooperative advertising by comparing with profits under the Stackelberg competition. The contract will guarantee the coordination of cooperative advertising and achieve the total supply chain profit maximization. The range of the parameters of the model is also given. And it is proved that if the proportion of advertising equals to the proportion of revenue sharing, then the proposed model can achieve the coordination of the manufacturer and the retailer in cooperative advertising.