Advertising in a distribution channel

Greg Shaffer*, Florian Zettelmeyer

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

55 Scopus citations

Abstract

Conventional wisdom suggests that one of the goals of manufacturer advertising is to reduce the cross-price elasticity between products (make one's own and rivals' products appear to be less substitutable in the eyes of consumers). Conventional wisdom also suggests that, all else being equal, retailers will be able to obtain better terms of trade from manufacturers the more substitutable are the manufacturers' products. It follows that retailers should be opposed to advertising that has the effect of reducing cross-price elasticities and thus that manufacturer advertising can be a source of channel conflict. We show that these conventional wisdoms need not hold when only some consumers are exposed to the advertising messages. Using a Hotelling model of demand, we show that (1) manufacturers can be worse off from advertising that reduces the cross-price elasticities between their products, (2) channel conflict need not arise, even when the sole purpose of advertising is to affect cross-price elasticities, and (3) depending on its bargaining power, a retailer can be better off when the manufacturers' products are perceived to be less substitutable.

Original languageEnglish (US)
Pages (from-to)619-628+630
JournalMarketing Science
Volume23
Issue number4
DOIs
StatePublished - Sep 2004

Keywords

  • Advertising
  • Bargaining
  • Channel conflict
  • Channel coordination
  • Differentiation
  • Distribution channel
  • Game theory

ASJC Scopus subject areas

  • Business and International Management
  • Marketing

Fingerprint Dive into the research topics of 'Advertising in a distribution channel'. Together they form a unique fingerprint.

Cite this