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to its retailer, and for a greater range of parameter val-
ues, than if that retailer were a monopolist.
There remain open issues for future research. To
preserve tractability, we did not model the manufac-
turer’s wholesale price decision in this paper, as was
done in He et al. (2009). Future research could extend
the model to also include the manufacturer’s whole-
sale price. It would also be interesting to explore deci-
sions in a retail oligopoly, along the lines of Fruchter
(1999).
Finally, this paper opens up a fruitful avenue for
future empirical research. Since we have provided
the optimal participation rates as well as their de-
pendence on various firm- and industry-level param-
eters, it would now be possible to empirically ex-
amine whether our results can explain the participa-
tion rates in different industries as reported in Dutta
et al. (1995). This would of course require estima-
tion of the firm- and industry-level parameters, pos-
sibly employing the techniques used in Naik et al.
(2008). Provided an appropriate data set can be found
or collected, an empirical study to validate our results
would undoubtedly deepen our understanding of the
cooperative advertising practices in different indus-
tries.
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Co-Op Advertising with Two Competing Retailers: A Feedback Stackelberg-Nash Game
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