Cooperative advertising in a sustainable supply chain: The role of government subsidies

Sustainable supply chain operations that emphasize environmental and social welfare have drawn significant attention. Supply chain members and governments are increasingly implementing incentive strategies to promote sustainability. This paper develops a game-theoretical model of a sustainable supply chain to examine the effectiveness of cooperative advertising under different government subsidy schemes. We consider that the supply chain consists of a green manufacturer and a retailer who sells a green product through advertising. The manufacturer can share advertising costs with the retailer, a strategy known as cooperative advertising, while the government can offer either the advertising subsidy or the consumption subsidy to support sustainability. Our analytical findings uncover that cooperative advertising may not always benefit the sustainable supply chain. Without the government subsidy, cooperative advertising is beneficial to the manufacturer, consumers, and the government only when the negative effect of cooperative advertising is mild; however, it is always detrimental to the retailer. In contrast, when a government subsidy is provided, not engaging in cooperative advertising is always superior. On the other hand, we find that government subsidies are always effective in facilitating sustainable supply chain operations, with the consumption subsidy outperforming the advertising subsidy. We further extend the model to explore the scenarios under (i) the manufacturer encroachment and (ii) a marginal advertising cost. We find the major findings remain valid in two extensions. This study not only contributes to the existing literature on sustainable supply chain management, but also offers practical insights for firms and governments to design incentive mechanisms.