Final answer:
Co-operative advertising is an agreement where a manufacturer helps pay for a retailer's advertising costs, fostering mutual benefits and potentially increasing demand and profits.
Step-by-step explanation:
An agreement between a manufacturer and retailer in which the manufacturer agrees to defray some advertising costs is known as co-operative advertising. This practice allows both the manufacturer and the retailer to benefit from shared advertising efforts and costs.
By pooling resources in this way, the advertising can more effectively reach a larger audience and potentially increase demand for the product, thus increasing profits for both parties involved. Co-operative advertising represents a strategic approach to marketing where the perceived demand curve for a product may shift to the right or become more inelastic, signifying that consumers are less sensitive to changes in price.
The concept of such partnerships in advertising is not merely a modern phenomenon. Economist A. C. Pigou discussed the impacts of advertising in his 1920 book, The Economics of Welfare, where he expressed the concern that some advertising efforts might simply neutralize the impacts of other advertisements rather than creating additional demand. This reflects the ongoing challenge of making advertising efficient and effective in a competitive market.