Cooperative Advertising and Channel Coordination

In this paper, we study the effectiveness of cooperative advertising arrangements as a means to improve channel coordination. We analyze two types of cooperative advertising arrangements, lump sum payments and constant percentage payments, and show that while lump sum payments have no effect on channel coordination, constant percentage programs help reduce the differences in the objectives of the manufacturers and retailers. Finally, we develop testable hypotheses relating the level of coop support to advertising and pricing elasticity and the length of the retail channel.