Financing for Newsboys with Information Asymmetry from Small Suppliers

This paper studies the bank credit and trade credit in a supply chain consisting of two asymmetric suppliers and one retailer with uncertainty demand and internal capital information asymmetry. Under two types of credit, we derive the key parameters under Stackelberg equilibrium, and demonstrate that high relative diversion risk level and low internal capital limit the bank credit, which affects the retailer’s order strategy. If the capital-constrained retailer only chooses one credit, retailer with high relative diversion risk level chooses trade credit, retailer with low relative diversion risk level chooses bank credit.under low relative diversion risk level, retailer with low internal capital chooses bank credit, while high internal capital retailer’s preference for specific credit depends on risk-free interest rates of two credit. We further demonstrate that the retailer gains more profits from the big supplier in competition and big supplier needs to provide interest rates no higher than the bank’s risk-free rate to win competition with small supplier. The value of small supplier competition to retailer decreases with the small supplier’s production cost and bank’s risk-free interest rate, and the retailer with low internal capital can gain more value of competition than the retailer with high internal capital.