Coordination of Information Sharing and Cooperative Advertising in a Decentralized Supply Chain with Competing Retailers Considering Free Riding Behavior

This paper studies a decentralized supply chain in which a manufacturer sells a common generic product through two traditional and online retailers under free riding market. We assume that the traditional retailer provides the value added services but the online retailer does not. Factors such as retail prices, local advertising of the retailers, and global advertising of the manufacturer and service level of the traditional retailer simultaneously has effect on market demand. This paper studies the cost information sharing between the manufacturer and traditional retailer and uses the cooperative advertising program as an incentive mechanism for information sharing under free riding. This paper also examines how the free riding phenomenon affects the information sharing between the manufacturer and traditional retailer and also the supply chain coordination. Our analysis shows that, through the cooperative advertising program, information sharing between the manufacturer and traditional retailer is always beneficial for all the supply chain members and therefore, the entire supply chain is coordinated except when the traditional retailer is not efficient and the degree of free riding is relatively small.