Coordinating Static and Dynamic Supply Chains with Advertising through Two-Part Tariffs

Zaccour (2008) analyses a marketing channel where firms invest in advertising to increase brand equity, showing that an exogenous two-part tariff cannot replicate the vertically integrated performance. I revisit the model proving that a multiplicity of efficient franchising contracts exists. I characterise an optimal two-part tariff specified as a linear function of the upstream firm’s advertising effort, performing this task both in the static and in the dynamic games. An analogous result emerges both in the static game, writing the fixed component of the two-part tariff as a non-linear function of the manufacturer’s advertising effort, and in the dynamic game, using a contract which is linear in the brand equity.