Abstract: A game theory approach is used to discuss the cooperative promotion programs between the manufacturer and retailer in a supply chain.We develop three strategic models to determine the equilibrium fees of cooperative promotion.The first is the traditional Stackelberg model where the manufacturer is the leader.Then,incorporating the trend of retailing power shifting from manufacturer to retailer,we analyze a model where the retailer is the leader.In the third model,we discuss a Pareto efficient cooperative promotion program.Finally we use Nash bargaining approach and utility theory in the Pareto efficient scheme to determine the best cooperative program.

Key words: cooperative promotion, Stackelberg equilibrium, Pareto efficiency, bargaining problem, utility theory