Received: 3 October 2022 Revised: 22 March 2023 Accepted: 8 April 2023

DOI: 10.1002/mde.3883

RESEARCH ARTICLE

Channel competition in omni-channel supply chain considering

social media advertising

Yan Wang | Shue Mei | Ruize Xu | Donghui Yang | Weijun Zhong

Department of Management Science and

Engineering, School of Economics and Abstract
Management, Southeast University, Nanjing,
As a germane marketing tool, advertising has shrift to social media platform. What
China
role of social media advertising plays in the omni-channel supply chain needs to con-
Correspondence
duct a thorough examination. Therefore, this paper investigates a model in which a
Shue Mei and Yan Wang, School of Economics
and Management, Southeast University, manufacturer supplies product to two competitive retailers to compare channel pay-
Nanjing, 210096, China.
offs when considering social media advertising in four different scenarios. Specifi-
Email: meishue@seu.edu.cn and
wangyanaseu@seu.edu.cn cally, the demand function fully considers the impact of exponential propagation of
social media advertising. The conclusions could provide decision basis for enterprises
Funding information
National Natural Science Foundation of China, and platform managers on social media channel selection, social media advertising
Grant/Award Numbers: 71871053, 71871054;
pricing and cooperation form selection.
National Social Science of China, Grant/Award
Number: 17BGL196

1 | I N T RO DU CT I O N attracted more and more advertising investment (Tsimonis

With the advancement of information technology, online advertising
is widely used in business, games, politics, and other fields to achieve
marketing and publicity effects (Fowler et al., 2021; Mishra &
Malhotra, 2021; Richardson et al., 2015). Compared with traditional
offline advertising, online advertising breaks through the limitations of
traditional advertising forms and dissemination methods, and has the
characteristics of diversity, interactivity, controllability, flexibility, low
cost, and extremely wide coverage (Goldfarb, 2014), and the invest-
ment in online advertising can effectively increase the value of adver-
tisers. The development of web2.0 has enriched the channels for
online advertising, such as websites, e-newsletters, and search
engines. (Torres et al., 2021). According to Global Advertising Forecast
1
by MAGNA, December 2021, online digital advertising revenue has
accounted for 62% of total global advertising sales in 2021 and has
formed a situation in which online digital advertising drives the
growth of the entire advertising market. Among them, along with the
popularity of social media platforms, social media advertising has
developed rapidly, becoming the form of digital advertising with the
largest revenue growth in 2021.
The emergence of social media has changed the way of interac-
tion with each other and has become a new effective channel to
deliver information to consumers (Rosario et al., 2016; Sriram
et al., 2021). Also, it has become a new way of advertising and
et al., 2020). Based on the characteristics of humanization, liberaliza-
tion, diversification, and accuracy of social media advertising, con-
sumers can interact and comment on products with other consumers
on social media and promote purchase intentions (Hajli, 2015). While,
for enterprises, they can effectively expand their customer groups and
increase their sales through marketing on social media platforms
(Stephen & Toubia, 2010). Recently, with the penetration of social
media into consumers, corporate business models have undergone
unprecedented changes. In addition to playing an important role in
advertising, product demand, and quantity, social media has also made
some achievements in the field of electronic commerce, such as the
development of Little Red Book APP. As community communication
platform, users record and share their life through text, pictures, and
videos in the APP. As a global shopping e-commerce platform, Little
Red Book relies on users to share content while selling related prod-
ucts, and it has accumulated a large number of high-quality users by
integrating three major businesses of e-commerce, community, and
social. On the one hand, social e-commerce integrates the characteris-
tics of social media advertising to effectively expand consumer groups
and stimulate consumers' purchasing awareness, and, on the other
hand, as one of the channels in the supply chain to facilitate con-
sumers' purchase of products and effectively improve operational effi-
ciency. Therefore, it is of great significance to study social media
channels in the supply chain.

3354 © 2023 John Wiley & Sons Ltd. wileyonlinelibrary.com/journal/mde Manage Decis Econ. 2023;44:3354–3366.

WANG ET AL.
With the rapid development of Internet and mobile information
technology, online and offline channels are also being deeply integrated
and gradually transformed into the model of “omni-channel retail.” In
the model, consumers can purchase products across channels at any
time and any place to achieve real-time user experience through multi-
channel (Beck & Rygl, 2015; Cai & Lo, 2020). Omni-channel supply
chain can integrate online channel, offline channel, BOPS (Buy Online
and Pick up in Store), showroom model, and other channels to meet
the shopping needs of consumers, which is also an important direction
of traditional supply chain innovation. However, the current research
on the third channel of omni-channel supply chain is still focused on
the BOPS channel (Cao et al., 2016; Gallino & Moreno, 2014; Gao &
Su, 2017). With the development of online platform, it is also an inevi-
table trend to consider the inclusion of the social media channel in the
supply chain. How to consider the communication characteristics of
social media from the perspective of supply chain, and how to consider
the impact of exponential growth of social media advertising in the
supply chain are also the problems to be solved in this paper.
In addition, the effective integration between channels is a very
important research content in multi-channel supply chain. In the pro-
cess of channel integration, manufacturers and retailers are not only
partners but also competitors, which inevitably leads to conflicts
between supply chains at the same level, and the higher the level of
complexity, the higher the level of conflicts among channel members
(Webb & Lambe, 2007). In order to mitigate channel conflicts, some
scholars put forward several effective mechanisms: one can achieve
channel coordination through the surplus profit sharing mechanism
(Ranjan & Jha, 2019), another could use profit-sharing contracts to
coordinate supply chains (Shang & Yang, 2015), and another can miti-
gate channel conflicts through cooperative advertising (Chen, 2015; Li
et al., 2021). Therefore, how to make optimal pricing decisions and
mitigate channel conflicts in cooperative advertising is also an issue
that must be considered in multi-channel supply chain research.
Based on the above analysis, this paper considers an omni-channel
supply chain model including offline channels, online sales channels, and
social media channels, in which a manufacturer supplies a single product
to two competitive retailers, and the demand function fully considers
the effect of exponential propagation of social media advertising. The
paper analyzes and compares the effects of the different scenarios-
decentralized decision, centralized decision, cooperative advertising,
and non-cooperative advertising decision on the optimal decisions of
advertising and pricing, and finally justifies the previous conclusions by
the analysis of calculation cases. The conclusions can help companies
and platform managers make decisions about social media channel
selection, social media advertising pricing, and partnership options.
2 | LITERATURE REVIEW
2.1 | Social media advertising
With the development of information technology and Web 2.0 tech-
nology, social media and social networks have become popular in daily
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3355
life and business. Lin et al. (2017) conducted a comprehensive and
systematic review of the literature in the field of social commerce and
summarized the current situation of social commerce research
through latent semantic analysis (LSA). The results found that adver-
tising has taken the center of social commerce, and enterprises
choose to spend more on advertising and marketing into social media
in order to obtain better interaction and customer coverage. Tsimonis
et al. (2020) collected quantitative data through online questionnaire
to study the relationship between consumers and brands in the social
media environment, and the analysis found that the relationship
between brands and their customers can be enhanced and strength-
ened through appropriate social media advertising. The attention of
the market has also promoted various literature studies on social
media advertising. Some literatures have analyzed the impact of fac-
tors in social media advertising on consumers. Sriram et al. (2021)
determined that the factors, such as details, celebrity effects, and
emotions, have a greater impact on consumers through investigation
and exploratory factor analysis. Winter et al. (2021) attempted to
investigate which personality traits and personal characteristics on
social media are most suitable for information personalization through
online experiment. And some literatures advertise tobacco
(Richardson et al., 2015), politics (Fowler et al., 2021), sports and
energy drink (Bleakley et al., 2022), food (Molenaar et al., 2021;
Murphy et al., 2020), and so forth through social media channels and
examine the impact of social media advertising on this.
To study the market impact of advertising, some literature has
tried to consider the advertising factor in the demand function. Huang
et al. (2013) conducted a comprehensive statistics and investigation
by incorporating the decision variables of price, rebate, delivery time,
space, quality and advertising into the demand function, and discussed
advantages and disadvantages of the advertising demand function.
Teyarachaku (2018) incorporated the influence of social media adver-
tising into the demand function, and studied the role of social media
sales and its influence on the batch process and pricing. Khorshidvand
et al. (2021) constructed a multi-level and multi-channel supply chain
decision model considering channel price, green product policy, and
advertising level and applied three different methods for analyzing the
situation of online and traditional channels. However, there is still a
lack of research on considering social media channels separately in
the supply chain.
2.2 | Omni-channel supply chain
Generally, in supply chain studies, much of the literature sets up a
two-stage structure for game analysis, which includes a manufacturer
providing the same product to one or more retailers and examining
competitive behavior such as Cournot, Stackelberg, and Nash (Yang &
Zhou, 2006). Significant amount of research has been done in the area
of supply chain, most of it is still focused on dual-channel supply
chain, with mixed researches on both channel models (Kumar &
Ruan, 2006; Pu et al., 2019; Xu & Qiu, 2020; Zhang et al., 2012). Yao
and Liu (2005) studied the equilibrium pricing strategies under the

3356
Bertrand and Stackelberg (manufacturer as leader and retailer as fol-
lower) price competition models of traditional retail channels and
online channels, and compared the profit and benefits under these
two types of competition. Besides, some literatures consider direct
sales channels in the supply chain; Chiang et al. (2003) constructed a
pricing game between a manufacturer who has direct sales channels
and its independent retailers and found that the manufacturer could
increase its negotiated share of cooperative profits by introducing
direct sales channel. Dumrongsiri et al. (2008) constructed a dual-
channel supply chain with a manufacturer and a retailer, which
includes direct sales channel and traditional retail channel, and found
that under centralized decision, the manufacturer would increase the
overall profit by adding a direct sales channel. Batarfi et al. (2016) con-
structed a dual-channel supply chain consisting of traditional retail
channels and online direct sales channels, and the results show that
adding online direct sales channels to sell customized products will
increase the profit of centralized supply chain system. All of the above
literature studies found that manufacturers could increase profits by
increasing online direct sales channels. Therefore, in addition to tradi-
tional retail channels, this paper will consider increasing direct sales
channels to improve the overall profit of the supply chain.
With the development of Internet, there are more and more
researches on the structure of cross-channel, multi-channel, and
omni-channel supply chain (Hu et al., 2022; Verhoef et al., 2015). Beck
and Rygl (2015) classified multi-channel, cross-channel, and omni-
channel retailing through literature review and proposed that multi-
channel retailing where consumers can shop across channels at any
time and any place is usually called omni-channel retailing. At present,
most omni-channel supply chains focus on the emerging retail model
of BOPS, in addition to studying the dual channel combination of
online, direct, and offline channels. Cao et al. (2016) analyzed the
impact of the BOPS channel on retailers' demand and profits; Gallino
and Moreno (2014) discussed the influence of BOPS on demand in
online and offline channels. Gao and Su (2017) investigated the influ-
ence of adding BOPS channels on retailers based on online and offline
channels, and found that implementing BOPS strategy for popular
products in stores could not bring higher profits. Li et al. (2021)
explored the effect of cooperative advertising on optimal cooperative
advertising and pricing decisions in online, offline, and BOPS channels.
However, with the rapid development of social media, the research
on incorporating social media channels into the supply chain system is
not mature enough. This paper will try to consider the effect of social
media advertising in the demand function of the supply chain.
2.3 | Cooperative advertising
With the development of e-commerce, many companies tend to
establish online channel for the same goods based on traditional retail
channels, and this paper will consider the inclusion of direct sales
channels in the supply chain. At this point, it is easy to lead to channel
conflicts between manufacturers and retailers, so supply chain coordi-
nation is an important issue in the multi-channel chain. Companies
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WANG ET AL.
can strengthen cooperation and weaken competition by means of
cooperative advertising to coordinate channel conflicts. Regarding the
theoretical study of cooperative advertising, Berger (1972) made the
first attempt to analyze cooperative advertising by quantitative
analysis. Chen (2015), Xie et al. (2017), and Zhou and Ye (2018) inves-
tigated the cooperative advertising coordination in the dual-channel
supply chain of online and offline channels. In addition, Li et al. (2021)
added a new channel to the dual-channel supply chain and investi-
gated the impact of cooperative advertising on optimal cooperative
advertising and pricing decisions under the online, offline, and BOPS
channels. There are also some literatures study on cooperative adver-
tising in different situations. For example, Taleizadeh et al. (2021) ana-
lyzed manufacturers and retailers under four different relationships:
Nash, Stackelberg (manufacturer as leader), Stackelberg (retailer as
leader), and cooperative advertising.
Some literatures provide further research on different types of
cooperative advertising. Szmerekovsky and Zhang (2009) showed that
the manufacturer should advertise nationally and offer lower whole-
sale prices to retailers rather than cooperate with retailers for local
advertising by constructing a two-stage supply chain model with a
manufacturer and a retailer and analyzing the pricing advertising deci-
sion under the Stackelberg game. Wang et al. (2020) discussed three
advertising scenarios (branded advertising, joint advertising, and cost
sharing of branded advertising) in a two-channel supply chain consist-
ing of a manufacturer and two competing retailers and found that the
cost-sharing model of branded advertising proposed in their paper has
the opportunity to benefit all supply chain members. In multichannel
supply chain, different channel prices and advertising will affect chan-
nel demand, so it is important to develop a suitable cooperative adver-
tising strategy to enhance the revenue of channel members and
reduce channel conflicts.
3 | MODEL FORMULATION
In this paper, an omni-channel supply chain model is developed with
offline channel, online channel, and social media channel. A Stackel-
berg structure is conducted between one manufacturer and two
retailers, in which the manufacturer is the leader and the retailers are
the followers. A manufacturer in the supply chain supplies a single
product to two competitive retailers and sets a common wholesale
price w in order to show the fairness of the manufacturer to the two
retailers. In the offline channel, the retail price of offline retailer R is
set as pr . While, in the social media channel, the retail price of retailer
S is set as ps . In the online channel, there is no intermediate retailer,
and the manufacturer sets the direct sales price as pm . In order to
reflect the welfare of consumers in the online sales channel, pm is less
than both pr and ps . The retailer S needs to provide advertising and
marketing expenses As for marketing in the social media channel.
Referring to the classic literature Mills (1959), demand is defined
as a decreasing linear function of price p in the online channel and off-
line channel. The market demand function of the product in the online
channel is DO ¼ a  bpm , where a is the maximum market demand and
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WANG ET AL. 3357

b is the market price sensitivity factor. The online channel has natural
price advantages, and the social media channel has advertising effects;
the market demand function of the product is expressed as Dr ¼
Mða bpr Þ to reduce the gap between the offline channel and other
channels, where M is the sales saturation level.
Followed the research of Teyarachaku (2018), the market demand


function of the product is developed as Ds ¼ M 1 eδAs ða bps Þ in
the social media channel considering the impact effect of the expo-
nential propagation of social media advertising, where the non-
negative constant δ is the function parameter and is the marketing
advertising investment coefficient. Add the influence of advertising
effect to the demand D considering the offline channel retailer R for
advertising, D ¼ D0 þ βAλr , where D0 is the initial demand, Ar is the
advertising investment of retailer R, β is the advertising effect factor,
and the larger β is the greater the effect of retailer R's advertising
investment on the demand for the good. Referring to Aust and
∂2D
Buscher (2014), λ ¼ 1=2, because of ∂ 2 Ar
< 0, the stimulating effect of
advertising on demand is diminishing marginal.
To facilitate solution of the Nash equilibrium, the channels are
independent of each other and the demands do not affect each other.
Parameters and the symbols are shown in Table 1, where superscripts
C and D denote the situation under centralized decision and
decentralized decision, respectively. The situation where the manufac-
turer and retailer R do not engage in cooperative advertising is repre-
sented by the superscript NC, and the situation where the
manufacturer and retailer R engage in cooperative advertising is
represented by the superscript CA.
As aforementioned, the omni-channel supply chain model is
shown in Figure 1. As seen in Figure 1, the system consists of a single
manufacturer M and two retailers R and S, and includes offline
channel R, online channel M, and social media channel S.
The game process can be divided into three stages. In the first
stage, the manufacturer decides whole sale price w and direct sales
price pm with the goal of maximizing its own profit. In the second
stage, retailer R and retailer S determine the retail price with the goal
of maximizing their own profit according to the direct sales price set by
the manufacturer. In the third stage, retailer S decides the advertising
and marketing expense As according to the direct sales price pm set by
the manufacturer and the retail price pr set by retailer R. At this point,
the decision profit functions of the manufacturer and retailers are as
follows:
π m ¼ wDr þ pm DO þ wDs ð1Þ
π r ¼ ðpr  wÞDr ð2Þ

TABLE 1 Description of parameters and symbols. π s ¼ ðps  wÞDs  As ð3Þ

Superscript Definition
* Optimal result of equilibrium
4 | MODEL ANALYSIS
C Centralized decision
D Decentralized decision
4.1 | Decentralized decision (D model)
NC Non-cooperative advertising decision
CA Cooperative advertising decision In decentralized decision, all players in the supply chain make deci-
Subscript sions based on the objective of maximizing their own profits. Accord-
s Social media channel ing to Stackelberg game between the manufacturer and retailers,
r Offline channels backward induction method is operated to solve the problem. The
O Online direct sales channel first step is to solve the advertising and marketing expenses of social
C Total supply chain media channels in the third stage. In this step, first let π s find the first
partial derivative of As and make it be zero to obtain the response
Decision variables
function of retailer S as follows:
w The wholesale price
pm The direct selling price ln½Mδðps  wÞða  bps Þ
As ¼ ð4Þ
pr Offline retail price δ
ps Social media channel retail price
Ar Offline advertising investment Next, solve the retail price of the second stage, in which the first-
As Social media advertising and marketing expense order partial derivative of π r with respect to pr is made to be zero, and
Parameters the optimal retail price for the offline channel can be obtained as
Ds Social media channel demand follows:
Dr Offline channel demand a þ bw
r ¼
pD ð5Þ
DO Online direct sales channel demand 2b
πm Manufacturer profit
Substituting Equation (4) into Equation (3), find the first partial
πr Offline channel retailer profit
derivative of π s with respect to ps , and set it to zero. After solving the
πs Social media channel retailer profit
equation, three equilibrium solutions about ps can be obtained:
πC Supply chain profit
ps1 ¼ aþbw
2b ,
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3358 WANG ET AL.

F I G U R E 1 Omni-channel supply
chain system considering advertising.

pffiffiffipffiffipffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
ffi
M δ 4bþa2 Mδ2abMwδþb2 Mw2 δ
or ps2 ¼ aMδþbMwδ 2bMδ , Proposition 1. The wholesale price of the product has a
pffiffiffipffiffipffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi
ffi
2
positive effect on the pricing of retailers R and S, and the
ps3 ¼ aMδþbMwδþ M δ 4bþa Mδ2abMwδþb Mw δ
2 2
or 2bMδ .
wholesale price has a negative effect on the marketing
According to the constraints and the convenience of the later cal- price As of retailer S with a decreasing influence. The mar-
culation, the optimal retail price of the online direct sales channel can keting price of retailer S is positively correlated with the
be obtained as follows: maximum market demand a and negatively correlated with

a þ bw the market price sensitivity coefficient b.

s ¼
pD ð6Þ
2b

Finally, solving the direct selling price of the first stage, in which Proposition 1 suggests that the wholesale price has a positive
Equations (4) and (5) are substituted into Equation (1), and taking the effect on the pricing of retailers R and S. The higher the
first partial derivative of π m with respect to pm as zero. The optimal wholesale price w, the more retailers R and S tend to increase
direct selling price is obtained as follows: their retail prices pr and ps in order to secure their own revenue.
However, the manufacturer does not need to consider the effect of
a
pD
m ¼ ð7Þ wholesale prices when setting the direct sales price pm , so the change
2b
of pm is independent of the wholesale price w. On the other hand, the
wholesale price has a negative effect on the marketing price pricing As
Substituting the optimal solution into the profit function, the opti- of retailer S. As the wholesale price and the cost of retailer S
mal profit of the manufacturer and the retailer can be obtained as increases, the retailer chooses to reduce the marketing cost to control
follows: the overall cost.
   It also indicates that as the maximum market demand
1 5a2 40
π D
m ¼ þ 11aMw þ bw 11Mw  a increases, the marketing price of retailer S also increases, and when
20 b aδ  bwδ
the market capacity increases, retailer S consequently increases its

Mða  bwÞ 2 advertising to expand its consumer groups. However, when

π D
r ¼ consumers are more sensitive to the market price, they will pay more
40b
attention to the sales price, and the effect of advertising is not out-
Þ2 δ
4b þ Mða  bwÞ 2
δ  4bln Mðabw standing, retailer S is more efficient in attracting consumers by reduc-
s ¼
π D 4b
4bδ ing prices, so retailer S can reduce advertising investment to
decrease costs.
The profit of the whole supply chain is
Proposition 2. The profit of manufacturer M is positively
 
Þ2 δ
40bða þ bwÞ  ða  bwÞ a2 ð10 þ 11MÞ  11b2 Mw2 δ þ 40bða  bwÞln Mðabw
4b
correlated with the marketing advertising input coefficient
π D
C ¼
40bða þ bwÞδ δ and negatively correlated with the market price sensitiv-
ity coefficient b. Retailer R's profit is negatively related to
Discussion and analysis of the equilibrium results obtained above the cost price w and the market price sensitivity coefficient
leads to the following Propositions 1–5. The proofs of them can be b. The whole supply chain profit is negatively correlated
found in the Appendix. with wholesale price w.
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WANG ET AL. 3359

In Propositions 2, it demonstrates that when the market capacity less profit under the centralized decision. The profit differ-
rises, the growth in the consumer groups increases the profits of the ence is negatively correlated with the wholesale price
manufacturer and retailer R. When wholesale price increases, retailer w and the marketing advertising investment coefficient δ.
R and supply chain profits decrease accordingly. When consumers are
more sensitive to market price, higher market price will arouse con- From Proposition 3, we can find that manufacturer will get higher
sumers' reverse psychology, and the manufacturer and retailer R profits under centralized decisions, when the advertising investment
profits will decrease. Meanwhile, as the marketing advertising factor coefficient in social media channels increases, and it stimulates con-
rises, the consumer market subsequently expands and the manufac- sumers to migrate to social media channels, thus affecting manufac-
turer's profits increase. turers' profits. It can be seen that when consumers are sensitive to
market prices, manufacturers can also achieve the purpose of increas-
ing profits by controlling wholesale prices. On the one hand, manufac-
4.2 | Centralized decision (C model) turer can improve its profits under the centralization decision by
raising wholesale prices. On the other hand, the increase in wholesale
In the centralized decision scenario, the model is established to maxi- prices will also affect retailers. If retailers want to raise market prices
mize the profit of the supply chain. The game process of this model is to balance the cost of increased wholesale prices, it will accelerate the
the same as D model, and the solution process is similar to D model. shift of price-sensitive consumers to direct sales channels.
Using backward induction method to solve the equilibrium results of Meanwhile, retailer R's profit decreases under centralized deci-
the decision variables is obtained as follows: sion and will continue to decrease with the increase of wholesale
2
ln Ma4b δ
s ¼
AC r ¼ 2b; ps ¼ 2b; pm ¼ 2b:
pC a C a C a
δ ; price and advertising input coefficient. When the advertising input
Substituting the obtained optimal solution into the profit func- coefficient of the social media channel increases, it stimulates con-
tion, the optimal profit of the manufacturer and retailers can be sumers to shift to the social media channel, thus affecting the profit
obtained as follows: of retailer R in the offline channel. When manufacturer earn higher
profits under the centralization decision, retailers R earn less profit. In
a2 11aMw 2bw the supply chain, retailer R who are completely rational decision
π C
m ¼ þ 
4b 20 aδ makers will not cooperate with the manufacturer in centralized deci-
sion. Therefore, the main issue for manufacturer is how to make
aMða  2bwÞ
π C
r ¼ retailers cooperate with its decisions.
40b

 2 Proposition 4. The profit difference of retailer S between

ða  2bwÞ 4b þ a2 Mδ  4abln a 4bMδ
π C
s ¼ centralized and decentralized decision is negatively corre-
4abδ
lated with the wholesale price w and the market price sen-

a2 ð10 þ 11MÞ 1 ln 4b a2 Mδ sitivity coefficient b. The profit difference of supply chain

π C
C ¼  
40b δ δ between centralized and decentralized decisions is posi-
tively correlated with the wholesale price w and the mar-
ket price sensitivity coefficient b.

It shows that the trend of the profit difference of retailer S and

4.3 | Comparative analysis of equilibrium results supply chain under centralized and decentralized decisions is the oppo-
site. The trend of the profit difference of supply chain and manufac-
In this section, we will discuss and compare the equilibrium results to turer is relatively consistent under the influence of each parameter, and
gain more management insights. We calculate the differences of it indicates that the manufacturer is more sensitive to the influence of
manufacturer and retailer between
centralized model and the same parameter and the profit changes more than the retailer S is.


decentralized model Δπ m ¼ π m  π m ¼ 20 bw2 11Mþ a2 δabwδ
CD C D 1 40b
, Δπ CD
r The game equilibrium analysis under centralized decision and
¼ π C
r  π r ¼  40 bMw . After computing all the effects of parame-
D 1 2
decentralized decision shows that under the centralized decision, the
ters, we get the derivative values and find the results in Proposition 3. manufacturer tends to make more profit than the decentralized deci-
sion, but the profit of retailer R is reduced compared to the decentra-
Proposition 3. Compared with the decentralized decision, lized decision, and retailer S also has to pay more marketing
the manufacturer obtains higher profits under the central- advertising investment, so both retailers prefer the decentralized deci-
ized decision, and the difference in profits under the two sion. Therefore, manufacturer have to make concessions through
decisions is positively related to the wholesale price w and some means to promote the centralized decision of supply chain and
the market price sensitivity coefficient b but negatively create more value for themselves and the supply chain. This paper will
related to the maximum market demand a and the market- consider whether it is possible to make retailers more profitable
ing advertising input coefficient δ, while retailer R will get through cooperative advertising in Section 4.1.

3360
5 | COMPARATIVE ANALYSIS
5.1 | Non-advertising cooperation model
(NC model)
To reduce the impact of online direct sales channels as well as social
media channels on offline channels, retailer R can choose to advertise
to increase market demand in offline channel. Meanwhile, the manu-
facturer can choose whether to share retailer R's advertising invest-
ment cost. Under the non-advertising cooperative model, the
manufacturer chooses not to share the retailer R's advertising invest-
ment. According to the equilibrium solution obtained in Section 4,
ps ¼ pr . In order to facilitate the subsequent analysis, retailer S takes
the retail price pr as the market retail price under the social media
channel.
In the case of non-advertising cooperative decision, all members
in the supply chain make decisions according to the goal of maximiz-
ing their own profits, and the game process divides into four stages. In
the first stage, the manufacturer determines the direct marketing price
pm with the objective of maximizing its own profit. In the second
stage, retailer R and retailer S determine the retail price according to
the direct selling price pm with the objective of maximizing their own
profit. In the third stage, the retailer S determines the advertising mar-
keting expense As based on the direct sales price pm and the retail
price pr . In the fourth stage, retailer R decides the advertising input Ar
based on direct sales price pm , retail price pr , and ps . The decision
profit functions of the manufacturer and retailers are as follows:
π m ¼ wDr þ pm DO þ wDs
π r ¼ ðpr  wÞDr  Ar
π s ¼ ðpr  wÞDs  As
Similar to the solution process under decentralized decision, using
the same backward induction method to solve the equilibrium results
of the decision variables is obtained as follows:
ð Þ
M2 ðabwÞ2 bM5β2 δ
2 2
ln 2
¼ M ðabwÞ 2β 2 ; ANC
2
ð2bM5β2 Þ
ANC
r s ¼ δ
4ð2bM5β Þ
2
pNC
r ¼ aMþbMw5wβ
2bM5β2
; m ¼ 2b
pNC a
Proposition 5. Under the omni-channel non-cooperative
advertising model, the advertising cost and the market
price of offline retailer are positively related to the adver-
tising effect, while the marketing cost of retailer S is nega-
tively related to the advertising effect.
Proposition 5 suggests that the analysis found that the offline
advertising of retailer R also affects the marketing expenses of retailer
S in social media channels. As the advertising effect of offline chan-
nels increases, offline channels attract more consumer groups, while
consumers of social media channels also shift to offline channels. In
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WANG ET AL.
order to avoid malicious competition between the two retailers by
increasing advertising in their respective channels, the retailer on
social media platform can directly reduce its costs by reducing its mar-
keting expenses to balance the decrease in profit caused by the
decrease in consumer groups.
5.2 | Cooperative advertising model (CA model)
Referring to Jorgensen and Zaccour (2014), channel conflict can be
mitigated through the channel coordination function of advertising
cooperation. Under the advertising cooperation model, the manufac-
turer chooses to share the advertising input of retailer R and sets the
advertising sharing rate t, where 0 < t < 1.
In the cooperative advertising decision situation, all members
in the supply chain make decisions according to their own
profit maximization objectives, and the game process divides into
five stages. In the first stage, the manufacturer decides the direct
sales price pm with the goal of maximizing its own profit. In the
second stage, retailer R and retailer S determine the retail price with
the goal of maximizing their own profits. In the third stage, the
manufacturer determines the advertising share rate t. In the fourth
stage, the retailer S decides on the advertising marketing expenses As .
In the fifth stage, the retailer R decides the advertising input Ar . The
decision profit functions of the manufacturer and retailers are as
follows:
π m ¼ wDr þ pm DO þ wDs  tAr
π r ¼ ðpr  wÞDr  ð1  tÞAr
π s ¼ ðpr  wÞDs  As
Similar to the solution process under decentralized decision, using
the same backward induction method to solve the equilibrium results
of the decision variables is obtained as follows:
M½2bMðabwÞ5aβ2 ð2aM2bMwþ5wβ2 Þδ
 2 ln 2
2MðaþbwÞ ð4bM5β2 Þ
ACA
r ¼ 1 2
16 β w þ 4bM5β2
; ACA
s ¼ δ
8MðaþbwÞ
tCA ¼ 3  2aMþ6bMw5wβ CA
2 ; pr ¼ 2ð4bM5β
aMþbMwÞ
2 m ¼ 2b
; pCA a
Proposition 6. Under the omni-channel cooperative
advertising model, the advertising share rate is negatively
correlated with the advertising effect β and the maximum
market demand a, and positively correlated with the mar-
ket price sensitivity coefficient b and the wholesale
price w.
According to Proposition 6 and combined with Proposition 2, the
profit of retailer R is positively related to the market price sensitivity
coefficient b and the wholesale price w. The trend of the retailer R's
profit is the opposite of the trend of the advertising share rate t. It is
obvious that when retailer R gains higher profit, it can bear more
 10991468, 2023, 6, Downloaded from https://onlinelibrary.wiley.com/doi/10.1002/mde.3883 by University Of Lincoln E-Resources Team, Wiley Online Library on [21/02/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
WANG ET AL. 3361

advertising investment alone; when retailer R's profit decreases, the cooperative advertising more specifically and deeply through exam-
manufacturer can bear more advertising cost to alleviate channel con- ples in Section 5.
flict with retailer R.
The equilibrium analysis of cooperative advertising shows that
the investment of cooperative advertising in offline channels also 6 | NU ME RI CAL STU DY
affects social media channels. When the advertising effect of offline
channels increases, the social media channel will reduce the marketing In this section, numerical examples are conducted to illustrate the
expenses of its own channels in order to reduce cost. At the same models. Therefore, threefold discussion is examined as
time, with the increase of advertising effect, the offline channel (1) calculate and analyze the changes in wholesale prices under
retailer increases advertising investment to continue to expand the decentralized decision; (2) calculate and compare the equilibrium solu-
advertising effect, and alleviates advertising costs by increasing the tions of different models; and (3) investigate the effect of different
market price. In this section, the equilibrium analysis of cooperative system parameters on the profit value under different models.
advertising mainly focuses on offline advertising investment and mar- According to the parameter constraints of the models proposed in this
keting costs in the social channel, and this paper will discuss paper, the parameters of the model are set as follows:
a ¼ 1,b ¼ 0:1,M ¼ 10000,δ ¼ 0:001,w ¼ 4, β ¼ 0:5.

T A B L E 2 Numerical analysis of wholesale price under

decentralized decision.
6.1 | Wholesale price solution analysis under
w D decentralized decision
δ ¼ 0:1 δ ¼ 0:01 δ ¼ 0:001
In the model analysis, it is too complicated to solve the equilibrium
a ¼ 0:1 b ¼ 0:1 M ¼ 1000 0.2092 - -
solution of w considering the exponential propagation characteristics
M ¼ 10,000 0.4417 0.2092 -
of social media advertising, so this paper will investigate the wholesale
b ¼ 0:3 M ¼ 10,000 0.1216 - -
price under decentralized decision through numerical analysis.
b ¼ 0:5 M ¼ 10,000 0.0619 - - Observing Table 2, as the maximum market demand a and the market-
b ¼ 0:7 M ¼ 10,000 0.0378 - - ing advertising input coefficient δ increases, the value of w increases;
a ¼ 0:5 b ¼ 0:1 M ¼ 100 1.6768 - - however, the value of w decreases with the increase of market price
M ¼ 1000 2.3687 1.6768 - sensitivity coefficient b. It shows that when the market demand is
M ¼ 10,000 2.4856 2.3687 1.6768 large, the manufacturer can increase the wholesale price appropriately
b ¼ 0:3 M ¼ 10,000 0.8193 0.7205 0.2958 to increase profits. However, when consumers are sensitive to the
b ¼ 0:5 M ¼ 10,000 0.4862 0.3992 0.075 market price, the manufacturer can influence the market price and

b ¼ 0:7 M ¼ 10,000 0.3436 0.2652 - increase the market demand by lowering the wholesale price. On the
other hand, as the marketing advertising input coefficient increases,
a¼1 b ¼ 0:1 M ¼ 10,000 4.9928 4.9293 4.4167
the wholesale price also increases, which indicates that when the
b ¼ 0:3 M ¼ 10,000 1.6595 1.5995 1.216
social media marketing advertising input factor is large, consumers
b ¼ 0.5 M ¼ 10,000 0.9928 0.9358 0.6188
migrate to the social media channel and the manufacturer can
b ¼ 0:7 M ¼ 10,000 0.7072 0.6527 0.3781
increase its profits by increasing the wholesale price.

T A B L E 3 Comparison and analysis of

D model C model NC model CA model Comparison model
equilibrium solutions under different
models. w 4.4167 - 4.4168 4.4153 5
Ar - - 0.5632 1.8914 -
As 2197.2246 3218.8758 2197.2242 2197.2240 -
ps 7 5 - - -
pr 7 5 7.0019 7.0022 7.5
pm 5 5 5 5 5
t - - - 0.4543 -
πm 11869.1667 21202.5 11863.2458 11862.4019 1252.5
πr 900 500 900.5629 901.0317 625
πs 5802.7754 1581.1242 5802.7723 5802.7712 -
πC 18571.9421 23283.6242 18566.5809 18566.2047 1877.5

3362
6.2 | Equilibrium solution and its comparative
analysis
The equilibrium solutions under the four different models of decentra-
lized decision, centralized decision, non-cooperative advertising deci-
sion, and cooperative advertising decision are shown in Table 3. As
shown in Table 3, from the perspective of supply chain, the profit of
supply chain under centralized decision is significantly improved. From
the perspective of retailers, retailer S needs to pay more for social
media advertising marketing and retailer R's profit decreases under
centralized decision; therefore, retailers are not enthusiastic about
centralized decision. From the perspective of the manufacturer, the
profitability of centralized decision is very significant, so the manufac-
turer should consider how to make the retailer choose to centralized
decision, such as the manufacturer exchange part of the profit for the
retailer's cooperation.
F I G U R E 2 The effect of wholesale price on profit value under
decentralized decision.
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WANG ET AL.
Comparing with NC model and CA model, the changes brought
by advertising cooperation are not obvious. In order to compare the
retailer R's different profits with or without social media channel, this
paper considers a comparison model that deletes the social media
channel in model D. In other words, the comparison mode only con-
siders offline channel and online direct sales channel. Table 3 shows
that compared with model D and comparison model, retailer R's profit
increases under omni-channel mode with social media channel. This
indicates that advertising in social media channel also promotes the
consumption consciousness of consumers in offline channel, but this
situation also inhibits the effect of offline cooperative advertising
under omni-channel. Moreover, comparing with the D model and the
comparison model, it is clear that the introduction of social media
channels in the supply chain can significantly increase the profitability
of the manufacturer, the supply chain, and the retailers. Therefore,
the introduction of the social media channel in the supply chain is very
meaningful.
6.3 | Impact analysis of profit value
As can be seen in Figure 2, the profitability of retailers R and S, as well
as the supply chain, decreases as w increases under decentralized
decision. The manufacturer's profit curve is convex and reaches the
maximum value when w = 4.4167, indicating that although the manu-
facturer's profit rises with the increase of wholesale price in the early
stage, when the wholesale price is too high, the manufacturer cannot
get higher profits. Also, in Figure 3, we can find that δ has no effect
on the manufacturer's profit value and has slight effect on other profit
values. In summary, the change trend of the supply chain and
F I G U R E 3 The effect of social media
advertising investment coefficient on
profit value under decentralized decision.

WANG ET AL.
F I G U R E 4 Each parameter's effect on the profit difference
between cooperative and non-cooperative advertising.
manufacturer profit value is similar, which indicates that the change
of the manufacturer is more significant than retailer R and retailer S
for the influence of each parameter on the profit value, and the manu-
facturer has more influence on the profit value of the supply chain.
In subsection 4.3, we compare and analyze the manufacturer,
retailer, and supply chain profit, but the influence of δ on retailer S
and supply chain needs to be further analyzed through calculation
examples. The difference between the profits of manufacturer and
supply chain under centralized and decentralized decisions decreases
as the marketing advertising input coefficient increases, and the over-
all difference is greater than zero, indicating that the profits of manu-
facturer and supply chain under centralized decisions are higher than
those under decentralized decisions. On the other hand, the profit dif-
ference of retailer S rises with the increase of marketing advertising
investment coefficient, but is less than zero, indicating that retailer S
profits under centralized decision are lower than that under decentra-
lized decision.
In order to alleviate the channel conflict, the manufacturer may
choose to shoulder part of the advertising input of retailer R,
Δπ CANC
m ¼ π CA
m  π m , Δπ r
NC CANC
¼ π CA
r  π NC
r , Δπ CANC
s ¼ π CA
s  π NC
s ,
Δπ CANC
C ¼ π CA
C  π C , and analyze the effect of each parameter on
NC
Δπ CANC
m , Δπ CANC
r , Δπ CANC
s , and Δπ CANC
C . According to Figure 4, when
the value of β is small, the impact on the profit value is small and the
impact on the retailer S profit is not significant. When the value of β
increases, retailer R's profit increases, but the profit of manufacturer
and supply chain decreases. However, the change is not significant.
Though comparing the effect of parameters δ on the profit value and
observing the scale of the vertical axis, we find that the different
parameters have less effect on the omni-channel model. Combined
with the analysis of the omni-channel model and the comparison
model in Table 3, we discover that social media advertising in the
social media channel weakens the effect of cooperative advertising.
7 | C O N CL U S I O N S
In this paper, we develop an omni-channel supply chain including off-
line and online direct sales channel and social media channel. Spe-
cially, we innovatively consider the exponential propagation effect of
social media advertising in the demand function. Then, we discuss the
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3363
optimal advertising and pricing strategies of a manufacturer and two
retailers in four different scenarios of decentralized, centralized, coop-
erative, and non-cooperative advertising decisions. The main conclu-
sions are gained as follows:
1. Generally, supply chain profitability is significantly higher with cen-
tralized decision. For social media channel retailer, the level of social
media advertising marketing under centralized decision is higher
than other decision models. For offline channel retailer, the profit of
centralized decision is lower than that of decentralized decision, so
retailers are not enthusiastic about centralized decision. However,
for the manufacturer, it mainly needs to consider the exchange of
individual profit for the cooperation of the retailer due to its profit
under centralized decision is significantly improved.
2. No surprisingly, manufacturers can control the entire supply chain
and even the market by controlling the wholesale price. When the
market demand is large, the manufacturer can appropriately
increase the wholesale price to increase profit, but when the
wholesale price is too high, manufacturer's profits reduced, so the
wholesale price should be set reasonably. When consumers are
sensitive to market prices, the manufacturer can influence market
prices and increase market demand by lowering wholesale prices
and thereby. Changes in wholesale prices will inevitably have an
impact on retailers, and when the wholesale price increases,
retailers will raise their own market prices in order to ensure their
own interests. Meanwhile, due to the increase of wholesale prices,
retailers' costs have increased, and in order to control overall costs,
social media channel retailers choose to maintain profits by reduc-
ing the cost of marketing and advertising. Therefore, the manufac-
turer can benefit retailers through wholesale price discounts, thus
reducing channel conflicts and coordinating retailers to make cen-
tralized decisions.
3. Noteworthily, with the advertising effect of offline channel retailer
growing, offline channels gain larger number of consumers. In order
to achieve higher profits and mitigate advertising costs, offline
retailers increase market prices and continue to increase advertising
investment to expand advertising influence. The advertising invest-
ment in the offline channel will also affect the impact of advertising
input in the social media channel. With the increase of the advertis-
ing effect in the offline channel, retailers in social media channels
will reduce the marketing investment to reduce costs.
4. When considering cooperative advertising, the trend of the impact
of offline channel retailers' profit on each parameter is the oppo-
site of the trend of the advertising share t. Thus, when the
retailer's profit is higher, it can bear the greater advertising invest-
ment alone. Otherwise, when the retailer's profit is lower, the man-
ufacturer can bear the greater cost of cooperative advertising to
alleviate the channel conflict. Compared with other literature that
cooperative advertising strategy can greatly improve the channel
operation efficiency and supply chain profit, this paper finds that
although cooperative advertising can increase the profit of
retailer R, its effect on the profit of manufacturer, retailers and
supply chain is very limited. Aiming at this phenomenon, this paper

3364
established a set of comparison model in which considering only
the offline channel and the direct sales channel, and found that the
profits of the manufacturer and retailers as well as the supply chain
were greatly improved when considering the social media channel.
It shows that advertising in the social media channel also promotes
consumer purchase awareness in the offline channel, but social
media advertising also suppresses the advertising effectiveness of
offline cooperative advertising due to the partial overlap of con-
sumer groups among different advertisements. The comparison
also shows that the inclusion of the social media channel in the
supply chain can significantly increase the profits of the manufac-
turer and the supply chain, as well as the retailers.
This paper provides decision basis and theoretical suggestions for
enterprises and platform managers on social media channel selection,
social media advertising pricing, and cooperation form selection, but
there are still shortcomings. On the one hand, this paper only con-
siders the case of competition between manufacturers and retailers;
in the future, we can consider the case of competition between multi-
ple retailers and extend to the case of competition between supply
chains. On the other hand, this paper only considers the cooperative
advertising between manufacturers and offline channels. Later, we
can consider the cooperation of marketing advertising between manu-
facturers and social media channels, and manufacturers can bear part
of the cost of social media advertising to promote supply chain coor-
dination. In addition, the three channels studied in this paper are inde-
pendent of each other, which is rare in reality, and the specific
research on the demand function of a single channel affecting other
channels is to be further explored.
ACKNOWLEDGMENTS
This work is supported by the National Social Science of China (Grant
No. 17BGL196) and National Natural Science Foundation of China
(Grant Nos. 71871053 and 71871054). The authors thank anonymous
referees who have given their constructive and valuable comments
that substantially help improve the quality of this paper.
DATA AVAI LAB ILITY S TATEMENT
The simulation data that support the findings in this paper are pro-
vided and illustrated at the part of NUMERICAL STUDY.
ORCID
Donghui Yang https://orcid.org/0000-0002-9447-3161
ENDNOTE
1
MAGNA is IPG's media resource integration center responsible for
developing and managing media intelligence, investment, and innovation
strategies.
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3366 WANG ET AL.

APPENDIX A

Proof of Proposition 1.
The investment of social media advertising and sale price of social media channel are given in Formulas (4), (6), and (5).
As ¼ ln½Mδðps w
δ
Þðabps Þ D
, pr ¼ aþbw
2b , ps ¼ 2b
D aþbw

∂AD ∂ 2 AD 2 ∂pD ∂pD

Solving the FOC of three value, we can get the results of s
∂w ¼  ðabw
2b
Þδ < 0, ∂w2
s
¼  ðabw
2b
Þ2 δ
< 0; s
∂w ¼ 12 ; r
∂w ¼ 12, which can proof the first
MðabwÞ2 δ
∂AD 1þln4ln ∂AD
half part of Proposition 1. When solving s
∂a ¼ aδbwδ
2
2
δ
b
> 0; s
∂b ¼  abδb
aþbw
2
wδ
< 0, the latter part of Proposition 1 can be illustrated.

Proof of Proposition 2.
 2 
∂π D 2 2 ∂π D ∂π D ∂π D ∂π D 2
As ∂b
m
¼  4b
a
2 20  ðabwÞ2 δ < 0;
11Mw 2aw
∂δ
m
¼ ðabw
2bw
Þδ2
> 0. ∂w
r
¼  20
1
Mða bwÞ < 0; ∂b
r
¼ 40
1
M  ab2 þ w2 < 0. ∂w
C
¼  11
20 bMw  ðabwÞ2 δ < 0, we could
2b w

find the relations between parameters and the profits in Proposition 2.

Proof of Proposition 3.
 
∂Δπ CD ð2abwÞ ∂Δπ CD 2bw ð2abwÞ 2 ∂Δπ CD 2
bw 11Mþ 20b
2 2
Calculating the FOC of profits differences, ∂w
m
¼ 10
1
2
aðabwÞ δ
> 0; ∂b
m
¼ 11Mw
20 þ aðabwÞ2 δ > 0; ∂δ
m
¼  aðabw
2b w
Þδ2
< 0.
∂Δπ CD ∂Δπ CD 2
∂w
r
¼  20
1
bMw < 0; ∂b
r
¼  Mw
40 < 0, we can reduce the results of Proposition 3.
Proof of Proposition 4. 2
bwðabw þ11MwδÞ40 ln a bMδþ40 ln
2 MðabwÞ δ 2 80 MðabwÞ δ 2
bwð8aMwδÞ4aln a bMδþ4a ln
Let Δπ CD
s ¼ π C
s  πs ¼
D
4aδ
b
, Δπ CD
c ¼ π C
c  πc ¼
D
40δ
b
, we can get
∂Δπ CD
 ∂Δπ CD
 ∂Δπ CD 2b2 w ∂Δπ CD 11Mw2 2bw2
∂w ¼ 2 bw M  a2 δabwδ < 0; ∂b ¼ 4 w M  a2 δabwδ < 0; ∂w ¼ 20 þ ðabwÞ2 δ > 0; ∂b ¼ 40 þ ðabwÞ2 δ > 0. We can get Proposition 4.
s 1 4b s 1 2 8b c 11bMw c

Proof of Proposition 5.
∂ANC M2 ðabwÞ2 ð2bMβþ5β3 Þ
Let ∂β ¼ , since the value of M is much larger than other parameters; therefore, we have
r
2ð2bM5β2 Þ
3

∂ANC ∂A NC
50β 3 ∂pNC 10MðabwÞβ
∂β > 0; ∂β ¼  ðbM5β2 Þð2bM5β2 Þδ < 0; ∂β ¼ 2bM5β2 2 > 0. Discussion and analysis of the equilibrium results obtained above lead to proposi-
r s r

ð Þ
tion 5.

Proof of Proposition 6.
By analyzing the above solution results and computing the partial derivatives as follows,
∂tCA 80MwðaþbwÞβ ∂tCA 8aMð4bM5β2 Þ ∂tCA 8Mwð4bMþ5β2 Þ ∂tCA 8Mwð4aMþ5wβ2 Þ
∂β ¼ < 0; ∂w ¼ > 0; ∂a ¼ < 0; ∂b ¼ > , one can get the proposition 6.
ð2aMþ6bMw5wβ2 Þ ð2aMþ6bMw5wβ2 Þ ð2aMþ6bMw5wβ2 Þ ð2aMþ6bMw5wβ2 Þ
2 2 2 2