IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v155y2021ics1366554521002313.html
   My bibliography  Save this article

Financing models for an online seller with performance risk in an E-commerce marketplace

Author

Listed:
  • Rath, Sambit Brata
  • Basu, Preetam
  • Mandal, Prasenjit
  • Paul, Samit

Abstract

Third-party sellers on e-commerce marketplaces (e.g., Amazon and Alibaba) have been primarily dependent on conventional financing modes such as bank credit financing (BCF) to meet their working capital requirements. Many of these platforms have recently started novel financing programs (platform credit financing, PCF) for the sellers under the umbrella of Supply Chain Finance. For example, Amazon provides unsecured loans to third-party sellers on its platform under the Amazon lending program. These loans are risky for the platform. If the seller is unable to fulfill customer’s orders because of some internal inefficiencies (performance risk), the platform loses the loan amount and incurs a goodwill cost among its customer base. In this paper, we develop a series of game-theoretic models to analyze and compare BCF and PCF for a cash-constrained third-party seller on an e-commerce marketplace. We derive optimal interest rates that the platform may charge the seller depending on its performance risk. We derive conditions under which either BCF or PCF could be more profitable for the seller. We introduce innovative contracts (Guaranteed Demand Increment Contract and Lending Rate Matching Contract initiated by the platform and Lumpsum Transfer Contract initiated by the seller) that incentivize the seller or platform to act in a mutually beneficial way. Our analysis shows that these contracts achieve win–win outcomes and increase the total supply chain profit.

Suggested Citation

  • Rath, Sambit Brata & Basu, Preetam & Mandal, Prasenjit & Paul, Samit, 2021. "Financing models for an online seller with performance risk in an E-commerce marketplace," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:transe:v:155:y:2021:i:c:s1366554521002313
    DOI: 10.1016/j.tre.2021.102468
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554521002313
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.tre.2021.102468?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Francis de Véricourt & Denis Gromb, 2018. "Financing Capacity Investment Under Demand Uncertainty: An Optimal Contracting Approach," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 85-96, February.
    2. Lin Tian & Asoo J. Vakharia & Yinliang (Ricky) Tan & Yifan Xu, 2018. "Marketplace, Reseller, or Hybrid: Strategic Analysis of an Emerging E‐Commerce Model," Production and Operations Management, Production and Operations Management Society, vol. 27(8), pages 1595-1610, August.
    3. Tsao, Yu-Chung, 2019. "Coordinating contracts under default risk control-based trade credit," International Journal of Production Economics, Elsevier, vol. 212(C), pages 168-175.
    4. Kolay, Madhuparna & Lemmon, Michael & Tashjian, Elizabeth, 2016. "Spreading the Misery? Sources of Bankruptcy Spillover in the Supply Chain," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(6), pages 1955-1990, December.
    5. Shi, Jia & Li, Qiang & Chu, Lap Keung & Shi, Yuan, 2021. "Effects of demand uncertainty reduction on the selection of financing approach in a capital-constrained supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 148(C).
    6. Diwakar Gupta & Yibin Chen, 2020. "Retailer-Direct Financing Contracts Under Consignment," Manufacturing & Service Operations Management, INFORMS, vol. 22(3), pages 528-544, May.
    7. René Caldentey & Martin B. Haugh, 2009. "Supply Contracts with Financial Hedging," Operations Research, INFORMS, vol. 57(1), pages 47-65, February.
    8. Volodymyr Babich & Panos Kouvelis, 2018. "Introduction to the Special Issue on Research at the Interface of Finance, Operations, and Risk Management (iFORM): Recent Contributions and Future Directions," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 1-18, February.
    9. P. Nandakumar & S. M. Datar & R. Akella, 1993. "Models for Measuring and Accounting for Cost of Conformance Quality," Management Science, INFORMS, vol. 39(1), pages 1-16, January.
    10. Hua, Shengya & Sun, Shuxiao & Liu, Zhongyi & Zhai, Xin, 2021. "Benefits of third-party logistics firms as financing providers," European Journal of Operational Research, Elsevier, vol. 294(1), pages 174-187.
    11. Wang, Chengfu & Fan, Xiaojun & Yin, Zhe, 2019. "Financing online retailers: Bank vs. electronic business platform, equilibrium, and coordinating strategy," European Journal of Operational Research, Elsevier, vol. 276(1), pages 343-356.
    12. Gong, Daqing & Liu, Shifeng & Liu, Jun & Ren, Long, 2020. "Who benefits from online financing? A sharing economy E-tailing platform perspective," International Journal of Production Economics, Elsevier, vol. 222(C).
    13. Panos Kouvelis & Xiaole Wu & Yixuan Xiao, 2019. "Cash Hedging in a Supply Chain," Management Science, INFORMS, vol. 65(8), pages 3928-3947, August.
    14. Yan, Jinjiang & Wang, Xianyu & Cheng, Hong & Huang, Lu, 2016. "Study on the coordination contract in supply chain under trade credit based on risk compensation," Chaos, Solitons & Fractals, Elsevier, vol. 89(C), pages 533-538.
    15. Hsiao-Hui Lee & Jianer Zhou & Jingqi Wang, 2018. "Trade Credit Financing Under Competition and Its Impact on Firm Performance in Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 36-52, February.
    16. Li, Yanhai & Gu, Chaocheng & Ou, Jinwen, 2020. "Supporting a financially constrained supplier under spectral risk measures: The efficiency of buyer lending," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    17. Christopher S. Tang & S. Alex Yang & Jing Wu, 2018. "Sourcing from Suppliers with Financial Constraints and Performance Risk," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 70-84, February.
    18. Panos Kouvelis & Wenhui Zhao, 2018. "Who Should Finance the Supply Chain? Impact of Credit Ratings on Supply Chain Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 19-35, February.
    19. Diwakar Gupta & Lei Wang, 2009. "A Stochastic Inventory Model with Trade Credit," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 4-18, November.
    20. Charles W. Haley & Robert C. Higgins, 1973. "Inventory Policy and Trade Credit Financing," Management Science, INFORMS, vol. 20(4-Part-I), pages 464-471, December.
    21. Yew Ming Chia & Irvine Lapsley & Hing-Wah Lee, 2007. "Choice of auditors and earnings management during the Asian financial crisis," Managerial Auditing Journal, Emerald Group Publishing, vol. 22(2), pages 177-196, January.
    22. Jiri Chod, 2017. "Inventory, Risk Shifting, and Trade Credit," Management Science, INFORMS, vol. 63(10), pages 3207-3225, October.
    23. Vandenberg, Paul, 2003. "Adapting to the Financial Landscape: Evidence from Small Firms in Nairobi," World Development, Elsevier, vol. 31(11), pages 1829-1843, November.
    24. Zhang, Qinhong & Dong, Ming & Luo, Jianwen & Segerstedt, Anders, 2014. "Supply chain coordination with trade credit and quantity discount incorporating default risk," International Journal of Production Economics, Elsevier, vol. 153(C), pages 352-360.
    25. Tunay I. Tunca & Weiming Zhu, 2018. "Buyer Intermediation in Supplier Finance," Management Science, INFORMS, vol. 64(12), pages 5631-5650, December.
    26. Fu, Hong & Ke, Ginger Y. & Lian, Zhaotong & Zhang, Lianmin, 2021. "3PL firm’s equity financing for technology innovation in a platform supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 147(C).
    27. Vishal Gaur & Sridhar Seshadri, 2005. "Hedging Inventory Risk Through Market Instruments," Manufacturing & Service Operations Management, INFORMS, vol. 7(2), pages 103-120, April.
    28. Qing Ding & Lingxiu Dong & Panos Kouvelis, 2007. "On the Integration of Production and Financial Hedging Decisions in Global Markets," Operations Research, INFORMS, vol. 55(3), pages 470-489, June.
    29. Soo-Haeng Cho & Xin Fang & Sridhar Tayur & Ying Xu, 2019. "Combating Child Labor: Incentives and Information Disclosure in Global Supply Chains," Manufacturing & Service Operations Management, INFORMS, vol. 21(3), pages 692-711, July.
    30. Yan, Nina & Liu, Yang & Xu, Xun & He, Xiuli, 2020. "Strategic dual-channel pricing games with e-retailer finance," European Journal of Operational Research, Elsevier, vol. 283(1), pages 138-151.
    31. Kaijie Zhu & Rachel Q. Zhang & Fugee Tsung, 2007. "Pushing Quality Improvement Along Supply Chains," Management Science, INFORMS, vol. 53(3), pages 421-436, March.
    32. Zhen, Xueping & Shi, Dan & Li, Yongjian & Zhang, Chu, 2020. "Manufacturer’s financing strategy in a dual-channel supply chain: Third-party platform, bank, and retailer credit financing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
    33. Wang, Fan & Yang, Xiao & Zhuo, Xiaopo & Xiong, Minghua, 2019. "Joint logistics and financial services by a 3PL firm: Effects of risk preference and demand volatility," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 312-328.
    34. Wei Luo & Kevin H. Shang, 2019. "Technical Note—Managing Inventory for Firms with Trade Credit and Deficit Penalty," Operations Research, INFORMS, vol. 67(2), pages 468-478, March.
    35. Lee, Chang Hwan & Rhee, Byong-Duk, 2011. "Trade credit for supply chain coordination," European Journal of Operational Research, Elsevier, vol. 214(1), pages 136-146, October.
    36. Panos Kouvelis & Wenhui Zhao, 2012. "Financing the Newsvendor: Supplier vs. Bank, and the Structure of Optimal Trade Credit Contracts," Operations Research, INFORMS, vol. 60(3), pages 566-580, June.
    37. John A. Buzacott & Rachel Q. Zhang, 2004. "Inventory Management with Asset-Based Financing," Management Science, INFORMS, vol. 50(9), pages 1274-1292, September.
    38. Shi, Jinzhao & Guo, Ju'e & Du, Qiang & Lin, Feng & Lai, Kin Keung & Cheng, T.C.E., 2020. "Optimal financing mode selection for a capital-constrained retailer under an implicit bankruptcy cost," International Journal of Production Economics, Elsevier, vol. 228(C).
    39. Jie Ning & Volodymyr Babich, 2018. "R&D Investments in the Presence of Knowledge Spillover and Debt Financing: Can Risk Shifting Cure Free Riding?," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 97-112, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ma, Cheng & Dai, Yuankang & Li, Zhongfei, 2022. "Financing format selection for electronic business platforms with a capital-constrained e-tailer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    2. Yu, Hao & Huang, Min & Chao, Xiuli & Yue, Xiaohang, 2022. "Truthful multi-attribute multi-unit double auctions for B2B e-commerce logistics service transactions," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).
    3. Xiaotong Guo & Yong He, 2022. "Mathematical Modeling and Optimization of Platform Service Supply Chains: A Literature Review," Mathematics, MDPI, vol. 10(22), pages 1-19, November.
    4. Jiang, Zhong-Zhong & Feng, Guangqi & Yi, Zelong & Lu, Weida, 2022. "Raising funds through crowdfunding for a capital-constrained servicing manufacturer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 164(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ma, Cheng & Dai, Yuankang & Li, Zhongfei, 2022. "Financing format selection for electronic business platforms with a capital-constrained e-tailer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 162(C).
    2. Jiang, Wen-Hui & Xu, Ling & Chen, Zhen-Song & Govindan, Kannan & Chin, Kwai-Sang, 2022. "Financing equilibrium in a capital constrained supply Chain: The impact of credit rating," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 157(C).
    3. Volodymyr Babich & Panos Kouvelis, 2018. "Introduction to the Special Issue on Research at the Interface of Finance, Operations, and Risk Management (iFORM): Recent Contributions and Future Directions," Manufacturing & Service Operations Management, INFORMS, vol. 20(1), pages 1-18, February.
    4. Deng, Sijing & Fu, Ke & Xu, Jiayan & Zhu, Kaijie, 2021. "The supply chain effects of trade credit under uncertain demands," Omega, Elsevier, vol. 98(C).
    5. Yan, Nina & Zhang, Yaping & Xu, Xun & Gao, Yongling, 2021. "Online finance with dual channels and bidirectional free-riding effect," International Journal of Production Economics, Elsevier, vol. 231(C).
    6. Li, Yanhai & Gu, Chaocheng & Ou, Jinwen, 2020. "Supporting a financially constrained supplier under spectral risk measures: The efficiency of buyer lending," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    7. Phan, Dinh Anh & Hovelaque, Vincent & Viviani, Jean-Laurent, 2023. "Integrating point-of-sale financing into the coordination of a price and credit dependent e-commerce supply chain," International Journal of Production Economics, Elsevier, vol. 259(C).
    8. Priya, Bhawna & Biswas, Indranil & Thürer, Matthias & Avittathur, Balram, 2023. "How to finance the supply chain when you are small? Clearance sale and loan payment timing in financially constrained supply chains," International Journal of Production Economics, Elsevier, vol. 263(C).
    9. Wang, Jing & Wang, Kai & Li, Xiang & Zhao, Ruiqing, 2022. "Suppliers’ trade credit strategies with transparent credit ratings: Null, exclusive, and nonchalant provision," European Journal of Operational Research, Elsevier, vol. 297(1), pages 153-163.
    10. Lin, Zhiping & Shi, Ruixia & Stecke, Kathryn E. & Xiao, Wenli & Xu, Di, 2021. "Selling to a financially constrained E-commerce retailer with bankruptcy cost and tax," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 146(C).
    11. Wang, Chengfu & Chen, Xiangfeng & Jin, Wei & Fan, Xiaojun, 2022. "Credit guarantee types for financing retailers through online peer-to-peer lending: Equilibrium and coordinating strategy," European Journal of Operational Research, Elsevier, vol. 297(1), pages 380-392.
    12. Wang, Kai & Lin, Jun & Liu, Guoquan & Liu, Qi, 2022. "Strategic introduction of logistics retail and finance under competition and channel spillover," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 165(C).
    13. Li, Yanhai & Ou, Jinwen & Gu, Chaocheng, 2023. "Buyer guarantee and bailout in supplier finance with bankruptcy cost," European Journal of Operational Research, Elsevier, vol. 305(1), pages 287-299.
    14. Gu, Chaocheng & Wei, Juan & Wei, Ying, 2021. "Sourcing under competition: The implications of supplier capital constraint and supply chain co-opetition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    15. S. Alex Yang & John R. Birge, 2018. "Trade Credit, Risk Sharing, and Inventory Financing Portfolios," Management Science, INFORMS, vol. 64(8), pages 3667-3689, August.
    16. Bi, Chen & Zhang, Baofeng & Yang, Feng & Wang, Yifan & Bi, Gongbing, 2022. "Selling to the newsvendor through debt-shared bank financing," European Journal of Operational Research, Elsevier, vol. 296(1), pages 116-130.
    17. Wang, Chengfu & Fan, Xiaojun & Yin, Zhe, 2019. "Financing online retailers: Bank vs. electronic business platform, equilibrium, and coordinating strategy," European Journal of Operational Research, Elsevier, vol. 276(1), pages 343-356.
    18. Chang, Shuhua & Li, Anqi & Wang, Xin & Wang, Xinyu, 2022. "Joint optimization of e-commerce supply chain financing strategy and channel contract," European Journal of Operational Research, Elsevier, vol. 303(2), pages 908-927.
    19. Gongbing Bi & Hao Pan, 2023. "The Impact of Platform Encroachment on the Manufacturer’s Financing Strategy," Sustainability, MDPI, vol. 15(5), pages 1-21, March.
    20. Xu, Xinhan & Chen, Xiangfeng & Jia, Fu & Brown, Steve & Gong, Yu & Xu, Yifan, 2018. "Supply chain finance: A systematic literature review and bibliometric analysis," International Journal of Production Economics, Elsevier, vol. 204(C), pages 160-173.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:155:y:2021:i:c:s1366554521002313. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.