Equilibrium pricing and advertising strategies in a marketing channel

This paper is concerned with conflict and coordination in a two-member chan nel of distribution. We propose a differential game model that includes car ryover effects of advertising, expressed by a retailer-specific stock of ad vertising goodwill. Pricing and advertising strategies for both firms are i dentified under channel conflict as well as coordination. Dynamic advertisi ng policies are designed as stationary Markov perfect strategies. In a symm etric case, these strategies can be determined in closed form, taking into consideration explicitly nonnegativity constraints on advertising rates. We establish a global result for the relationship between the advertising str ategies of the two firms under conflict and coordination.