Research on Dynamic Supply Chain Coordination through Advertising with Reference Price Effect

Abstract

To better understand the dynamic supply chain coordination with advertising activities, this paper considers the reference price effect, and studies a two-echelon supply chain composing of one manufacturer and one retailer in the dynamic situations of Nash non-cooperative game, Stackelberg game and cooperative game respectively. In our differential game models, market demand is influenced by the goodwill and the difference between reference price and actual price. Advertising activities play a significant role in enhancing goodwill which further increases in reference price. The results indicate that it is a kind of Pareto improvement for the manufacturer., the retailer and the whole supply chain from Nash non-cooperative game to Stackelberg game and finally to cooperative game. The numerical analyses further confirm the research results.