Journal
EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
Volume 198, Issue 2, Pages 655-665Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.ejor.2008.09.027
Keywords
Game theory; Marketing; Franchising; Cooperative advertising; Horizontal cooperation
Funding
- Athabasca University
- Kilts Center for Marketing at the University of Chicago
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The main question of this research is: Who should Undertake promotional and brand-image advertising if the franchisor and franchisees act so as to maximize their respective profits? To address this question, We study a two-stage advertising game between a franchisor and two adjacent franchisees. In the first stage of the game, the franchisor chooses between three advertising models - centralizing or delegating the two types of advertising to the franchisees or delegating only promotional advertising. In the second stage, given the franchisor's choice of an advertising model, the two franchisees decide whether or not to cooperate. Our main findings are that (1) the franchisees Should cooperate if the franchisor delegates either both brand-image and promotional advertising or promotional advertising, although cooperation between franchisees does not necessary improve the franchisor's profits. (2) The choice of all advertising arrangement critically depends oil the margins as well as the costs of performing both promotional and brand-image advertising, We also discuss the Conditions Under which the three advertising models should be implemented. (C) 2008 Elsevier B.V. All rights reserved.
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