Cooperative agreements between manufacturers and retailers concerning retail promotion and manufacturer advertising are often the key to the success of new products.Analyze the following sequential product promotion game,and then predict 1)whether the product will be updated by the manufacturer (Man),2)whether the retail distributor (RET)will promote the product,and 3)whether the manufacturer will advertise the product.No explanation necessary.

Question

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The Answer is The manufacturer (Man)controls the endgame and the initial decision,but to analyze the optimal product update decision the manufacturer must predict the retailer's (RET)best reply promotion decision.And to select the optimal promotion decision,the retailer will look ahead and perform endgame analysis of the manufacturer's advertising decision.In the subgame where the manufacturer has updated and the retailer promoted .

Knowing that updating the product will result in a best reply retailer response of "not promote" and a payoff to the manufacturer of $280,the manufacturer then decides whether he would wish to not even update the product.Again,best reply responses by the retailer must be assumed.Looking ahead to the endgame,the retailer is again better off not promoting a product that hasn't been updated (i.e. ,$130 preferred to $60 in the bottom of the game tree).As a result,the manufacturer can realize only $150 from a decision not to update the product,and therefore prefers the $280 payoff from updating and advertising.

The subgame perfect equilibrium strategies are then (Update,Not Promote,Advertise)for a ($120,$280)payoff to (RET,Man).

Cooperative Agreements Between Manufacturers and Retailers Concerning Retail Promotion and Manufacturer