Abstract: For a supply chain with a direct channel and a traditional channel, the optimal decisions are studied when the demand depends on prices and advertising expense. The Stackelberg game model are analyzed respectively under different pricing scheme: the consistent pricing scheme under which retailer decides the channel prices and the inconsistence pricing scheme under which manufacturer and retailer decide their own channel prices respectively. Furthermore, the impact of cooperative advertising on the optimal decisions are investigated. The numerical analysis compares the optimal decisions and the profits under different schemes and centralized decision model. The research shows that the inconsistent pricing scheme is superior to the consistent pricing scheme for manufacturer and the dual channel supply. The consistent pricing scheme is benefit to retailer under certain conditions.

Key words: dual channel, pricing decision, cooperative advertising