This paper focuses on pricing and vertical cooperative advertising decisions in a two-tier supply chain. Using a
Stackelberg game model where the manufacturer acts as the game leader and the retailer acts as the game follower, we
obtain closed-form equilibrium solution and explicitly show how pricing and advertising decisions are made. When
market demand decreases exponentially with respect to the retail price and increases with respect to national and local
advertising expenditures in an additive way, the manufacturer benefits from providing percentage reimbursement for the
retailer’s local advertising expenditure when demand price elasticity is large enough. Whether the manufacturer benefits
from cooperative advertising is also closely related to supply chain member’s relative advertising efficiency. In the
decision for adopting coop advertising strategy, it is critical for the manufacturer to identify how market demand depends
on national and local advertisements. The findings from this research can enhance our understanding of cooperative
advertising decisions in a two-tier supply chain with price-dependent demand.