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University of Florida
Levin College of Law

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Thursday, May 9, 2013

Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs

Posted by D. Daniel Sokol

Luca Lambertini, University of Bologna - Department of Economics is Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs.

ABSTRACT: Zaccour (2008) investigates the behaviour of a marketing channel where firms invest in advertising to increase brand equity, showing that an exogenous two-part tariff cannot be used to replicate the vertically integrated monopolist’s performance. I revisit the same model proving the existence of a multiplicity of franchising contracts taht can do the job. In particular, I set out by illustrating an optimal two-part tariff specified as a linear function of the upstream firm’s advertising effort, performing this task both in the static and in the dynamic game. Then, I show that an analogous result emerges (i) in the static game by writing the fixed component of the two-part tariff as a non-linear function of the manufacturer’s advertising effort; and (ii) by using a contract which is linear in the brand equity, in the dynamic case.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/05/coordinating-static-and-dynamic-supply-chains-with-advertising-through-two-part-tariffs.html

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