Incentives for retailer promotion in a marketing channel

Abstract

This chapter analyzes a differential game model of a two-member marketing channel. A manufacturer invests in national advertising with the purpose of improving (or sustaining) the image of one of her brands, and her retailer makes local promotions for the brand. The game is played à la Stackelberg with the manufacturer as leader. We characterize and compare equilibria for two scenarios. In the first one, the manufacturer designs an incentive strategy to affect the retailer’s promotion strategy with the objective of maximizing the total channel profit. In the second, the manufacturer’s objective is the maximization of her own payoff.