Vertical Cooperative Advertising: A Manufacturer’s Perspective

Vertical cooperative advertising, where a manufacturer participates in his retailer's local advertising, has been examined extensively in the operations research literature. Yet there are some controversies in the literature regarding when such cooperative advertising is beneficial. We attempt to reconcile these controversies by considering all relevant variables in a single framework. We find that the manufacturer's participation in local advertising is a reasonable strategy for him only when the following conditions are met: The retail price is driven by the market, the manufacturer's contribution margin is high compared to the retailer's, and the demand is inelastic or moderately elastic.