Pricing and advertising investment policy for agricultural products with government subsidy

Abstract

This paper studies the agricultural product supply chain where the local government dominates the whole supply chain and the retailer is the leader of the channel. The local government motivates the retailer to promote the product by providing unit subsidy, and the retailer invests advertisement effort in improving customers' belief towards products' quality. We determine the optimal wholesale price, selling price, advertising investment and government subsidy, and compare regular mode and cost sharing mode with respect to deterioration loss. We find that the supplier and the retailer can both benefit from deterioration cost-sharing without government intervention. However, the government tends to provide higher unit subsidy under the regular mode, which makes the supplier and the retailer obtain more profit under the regular mode.