SHELF-SPACE ALLOCATION AND ADVERTISING DECISIONS IN THE MARKETING CHANNEL: A DIFFERENTIAL GAME APPROACH

This paper deals with the issue of shelf-space allocation and advertising decisions in marketing channels. We consider a network composed of a unique retailer offering the products of two competing manufacturers. The retailer controls the amount of shelf-space to allocate to both brands, while the manufacturers make advertising decisions in order to build their brand image (i.e. the goodwill stock). The demand for each brand is affected by its own goodwill level and the shelf-space allocated to the brand at retailer's store. The problem is formulated as a Stackelberg differential game played over an infinite horizon, with the manufacturers as leaders and the retailer as the follower. Stationary feedback equilibria are computed. Our main results indicate that the shelf-space allocated to each brand, manufacturers' advertising strategies at the equilibrium and channel members' value functions are affected by the goodwill levels of both products.