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Financing decisions in a supply chain with a capital-constrained manufacturer as new entrant

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  • Yang, Hui
  • Sun, Fei
  • Chen, Jing
  • Chen, Bintong

Abstract

We examine financing and pricing decisions in a supply chain in which a common retailer is supplied by an incumbent manufacturer and a capital-constrained new entrant manufacturer. We identify the conditions under which the retailer should offer financing directly to the new entrant manufacturer, and show how the retailer sets an interest rate that is either forward-looking or short-sighted. We provide a decision scheme for the new entrant manufacturer, who must choose either retailer financing (RF) or bank financing (BF), depending on conditions. We consider two types of retailers, forward-looking (F-retailer) and short-sighted (S-retailer). We show that a retailer offers RF when its risk-free interest rate is lower than the bank's interest rate. An S-retailer sets its interest rate at the risk-free interest rate or at a threshold interest rate (higher than the risk-free interest rate), while an F-retailer should set its interest rate at a threshold interest rate that is lower than that of the bank and may be lower than the risk-free interest rate. The new entrant manufacturer should adopt the RF scheme if RF is available. We also discuss how the capital-constrained new entrant influences competition in the supply chain, and how the incumbent manufacturer's brand power influences the retailer's financing decision. Numerical examples are included to illustrate the major results.

Suggested Citation

  • Yang, Hui & Sun, Fei & Chen, Jing & Chen, Bintong, 2019. "Financing decisions in a supply chain with a capital-constrained manufacturer as new entrant," International Journal of Production Economics, Elsevier, vol. 216(C), pages 321-332.
    • Handle: RePEc:eee:proeco:v:216:y:2019:i:c:p:321-332
    DOI: 10.1016/j.ijpe.2019.06.014
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    References listed on IDEAS

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    Cited by:

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    3. Yan, Nina & Xu, Xun & Huang, Wenyi, 2021. "Supplier's capacity investment strategy with factoring finance," International Journal of Production Economics, Elsevier, vol. 238(C).
    4. 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).
    5. 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).
    6. Akgün, İbrahim & Özkil, Altan & Gören, Selçuk, 2020. "A multimodal, multicommodity, and multiperiod planning problem for coal distribution to poor families," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).
    7. Yan, Nina & Jin, Xuyu & Zhong, Hechen & Xu, Xun, 2020. "Loss-averse retailers’ financial offerings to capital-constrained suppliers: loan vs. investment," International Journal of Production Economics, Elsevier, vol. 227(C).
    8. Chen, Yuting & Zhang, Rong & Liu, Bin, 2022. "New product financing decision: Crowdfunding, bank or supply chain?," International Journal of Production Economics, Elsevier, vol. 249(C).
    9. Shi, Jinzhao & Liu, Dian & Du, Qiang & Cheng, T.C.E., 2023. "The role of the procurement commitment contract in a low-carbon supply chain with a capital-constrained supplier," International Journal of Production Economics, Elsevier, vol. 255(C).
    10. Yongming Zhang & Weida Chen, 2022. "Optimal production and financing portfolio strategies for a third‐party remanufacturing supply chain with capital constraint," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 3072-3094, October.
    11. Zhang, Ting & Su, Yina & Wang, Ningning, 2023. "Product quality improvement under retailer-direct financing: Effects of attitudes toward extreme weather," International Journal of Production Economics, Elsevier, vol. 257(C).

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