The impact of platform fee scheme on manufacturer-E-tailer co-operative advertising: A game-theoretic analytical study

Abstract

This study analyzes how the new online platform-selling format affects the optimal co-operative advertising choices of both the manufacturer and the e-commerce platform (e-tailer), and explores the effects of the e-tailer’s contractual forms and commission fees on these choices. In the model, the manufacturer can decide its advertising expenditure as well as the level of participation in the e-tailer’s co-operative advertising program. Unlike the traditional reselling format, in platform selling the manufacturer can decide the retail price charged to the customer directly. The underlying forces of the profit corrosion effect of the commission fee and the demand expansion effect of co-operative advertising reshape the channel’s outcomes. Our findings show that a high commission fee can hinder or foster investment in the co-operative advertising program. Furthermore, the e-tailer always prefers the revenue-sharing scheme under which both e-tailer and manufacturer are better off in most cases, but it results in a lower participation rate and profitability for the manufacturer compared with the per-unit rent scheme. Moreover, the supply chain’s performance could be better when the relative efficiency of co-operative advertising is either sufficiently low or sufficiently high.

Keywords:

• E-commerce platform
• Co-operative advertising
• Platform-selling contracts
• Manufacturer-retailer supply chain
• Game theory

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Digiday (2017) ‘It’s a black hole’: Marketers are taking more control over their co-op advertising. (December 1). Available at https://digiday.com/marketing/brands-take-more-control-over-their-cooperative-advertising/.

2 See an example of a cooperative advertising allowance agreement in http://rasmussenironworks.com/wp-content/uploads/2015/08/Coop-Adv-Program_ADV815.pdf.

3 See https://yourbusiness.azcentral.com/examples-cooperative-advertising-11534.html.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [Grand number 71772115].