Wholesale price contract versus consignment contract in a supply chain considering dynamic advertising

Supply chain contracts are widely considered as useful and necessary tools to guide and restrict channel members' behaviors. Considering the effect of dynamic advertising, we investigate two distinct types of contracts between a dominant retailer and her manufacturer. One contract is a traditional wholesale price contract and the other is a consignment contract. The results show that, compared to the wholesale price contract, the consignment contract is always more desirable from the perspectives of the retailer and the entire channel and brings more consumer surplus. When the dominant retailer's advertising effort is very effective or channel members have enough patience, the dominant retailer and the manufacturer can achieve a Pareto improvement under the consignment contract; otherwise the manufacturer prefers the wholesale price contract.