Title: Manufacturers' pricing and advertising strategies for complementary and substitute goods

Authors: Emad Roghaniana; Zahra Namazian

Addresses: Department of Industrial Engineering, K.N. Toosi University of Technology, No. 7, Pardis Street, Mollasadra Street, Vanak, Tehran, Iran ' Faculty of Information Technology, Monash University, Clayton VIC 3800, Melbourne, Australia

Abstract: Several studies show that in the competitive global market, companies can maximise their profits by adopting appropriate strategies for pricing and advertising. This paper considers the competitiveness in the supply chain with three goods, including main good, complementary good and substitute good. The pricing and advertising strategies of manufacturers of these types of goods are considered since they have profound impacts on the manufacturers' profits. Therefore, it proposes a mathematical model to find the optimal manufacturers' strategies of pricing and advertising for each good by using Stackelberg game theory. In Stackelberg game theory, the main good and complementary good act as a leader due to their cooperative strategies, and the substitute good of the main good is a follower and compete with the complementary goods. Furthermore, the sensitivity analysis is presented to illustrate the effects of substitute degree and complementary.

Keywords: pricing; advertising; complementary good; substitute good; Stackelberg game.

DOI: 10.1504/IJSOM.2023.134271

International Journal of Services and Operations Management, 2023 Vol.46 No.2, pp.284 - 302

Received: 25 Sep 2020
Accepted: 22 May 2021
Published online: 17 Oct 2023 *

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