| Advertising can increase the firms’ demand, how to compete with advertising strategy is the main strategy. Meanwhile, manufacturer encroachment in supply chain impacts on the upstream and downstream firms’ strategy. With a game-theoretical model, this paper investigates in manufacturer encroachment, how manufacturer and retailer make their advertising decisions within three different advertising scenarios: “manufacturer advertising”, “manufacturer-retailer advertising” and “retailer advertising”. Meanwhile, we examine how channel substitution effect caused by manufacturer encroachment impacts on firms’ advertising, pricing and other relevant strategies. The results indicate that, even the basic market shrinks due to manufacturer encroachment, when the unit cost of advertising is low, manufacturer and retailer can earn more profit with advertising no matter the degree of channel substitution effect changes or the advertising mode changes. When the unit cost of advertising is relatively high, manufacturer encroachment will hurt the retailer; and the manufacturer may be hurt only within “retailer advertising”. The impact of manufacturer encroachment on the advertising level in retail channel is relative with the advertising mode, the unit cost of advertising and the degree of channel substitution effect. In “manufacturer advertising”, the advertising level in retail channel is lower than without manufacturer encroachment; but in “manufacturer-retailer advertising” and “retailer advertising”, the advertising level in retail channel differs. |
