Conventional wisdom believes that the spring-up of cooperative advertising is owing to the difference between the manufacturer's national advertising and the retailer's local advertising. This paper develops a channel competition model to investigate the efficiency when manufacturers or retailers shoulder the responsibility of advertising. It is found that if manufacturers sponsor advertising, they are likely to engage in fierce advertising competition. Yet if it is the retailers who decide the advertising volume, they have not any motivation to advertise at all! This is because all the extra earnings received from advertising would be robbed by the manufacturers. Therefore, it is claimed that cooperative advertising may be a consequence of the retailer's downstream role. In a competitive retail market, the downstream sector is not as likely as the upstream firm to invest heavily in advertising, thereby avoiding the prisoner's dilemma.

Yueyun Zhang. Why We Choose Cooperative Advertising? An Analysis of Channel Competition. Academic Journal of Business & Management (2022) Vol. 4, Issue 14: 88-92. https://doi.org/10.25236/AJBM.2022.041414.

[1] Arya A, Mittendorf B. Benefits of channel discord in the sale of durable goods. Marketing Science, 2006, 25(1): 91-96.

[2] Bergen M, John G. Understanding cooperative advertising participation rates in conventional channels. Journal of Marketing Research, 1997, 34(3): 357-369.

[3] Berger P D. Vertical cooperative advertising ventures. Journal of Marketing Research, 1972, 9(3): 309-312.

[4] Coase R H. Durability and monopoly. The Journal of Law and Economics, 1972, 15(1): 143-149.

[5] Desai P, Koenigsberg O, Purohit D. Strategic decentralization and channel coordination. Quantitative Marketing and Economics, 2004, 2(1): 5-22.

[6] Hotelling H. Stability in competition. The Economic Journal, 1929, 39(153): 41-57.

[7] Karray S, Zaccour G. Could co-op advertising be a manufacturer's counterstrategy to store brands? Journal of Business Research, 2006, 59(9): 1008-1015.

[8] McGuire T W, Staelin R. An industry equilibrium analysis of downstream vertical integration. Marketing Science, 1983, 2(2): 161-191.

[9] Nagler M G. An exploratory analysis of the determinants of cooperative advertising participation rates. Marketing Letters, 2006, 17(2): 91-102.

[10] Shaffer G, Zettelmeyer F. Advertising in a distribution channel. Marketing Science, 2004, 23(4): 619-628.

[11] Spengler J J. Vertical integration and antitrust policy. Journal of Political Economy, 1950, 58(4): 347-352.

[12] Wang C J, Chen Y J, Wu C C. Advertising competition and industry channel structure. Marketing Letters, 2011, 22(1): 79-99.

[13] Wu C C, Chen Y J, Wang C J. Is persuasive advertising always combative in a distribution channel? Marketing Science, 2009, 28(6): 1157-1163.

[14] Xie J, Wei J C. Coordinating advertising and pricing in a manufacturer–retailer channel. European Journal of Operational Research, 2009, 197(2): 785-791.

[15] Yan R. Cooperative advertising, pricing strategy and firm performance in the e-marketing age. Journal of the Academy of Marketing Science, 2010, 38(4): 510-519.

[16] Zhang J, Cao Q, He X. Manufacturer encroachment with advertising. Omega, 2020, 91: 102013.

[17] Zhang J, Zhong W, Mei S. Competitive effects of informative advertising in distribution channels. Marketing Letters, 2012, 23(3): 561-584.