Cooperative advertising and coordination in a supply chain: The role of Nash bargaining fairness concerns

Abstract

This study constructs a game-Theoretic model of cooperative advertising in a supply chain with Nash bargaining solutions as the fairness reference point. We use a square root response function to describe the saturation effect of advertising. We find that the retailer s Nash bargaining fairness concerns (NBFC) improve the local advertising investment even more than the level of the centralized case. The effect of NBFC on the retailer s profit is inverted U-shaped, rising first and then falling, and vice versa for the manufacturer. As the fairness-concerned coefficient increases from small to large, the efficiency of the supply chain changes from improvement to decline. Moreover, we find that a two-way subsidy mechanism in cooperative advertising still works on coordination although the retailer possesses NBFC. The study offers practical management insights into the operational strategies of supply chain members.