The supply chain effects on order strategy of cross-shareholdings

ABSTRACT

This study examines the joint impact of the vertical cross-shareholdings and external financing, including trade credit and bank loans, on the order strategy of a capital-constrained retailer. We set the target retailer and his supplier, which are connected with vertical cross-shareholdings, in the extended Cournot and Stackelberg game. The capital-constrained retailer could raise external financing when he has exhausted his own cash. Besides, the retailer may be faced with the random shock result from the other business. We use optimal response function to model how the capital-constrained retailer determines his order quantity under cross-shareholdings in response to different market conditions (such as his own cash level and other competitor’s order strategy). We find that, the retailer orders more under cross-shareholdings if the retailer is well-funded with his own cash or external financing, resulting in a win-win situation for the supplier and retailer. However, if the retailer has run out of all his cash and credit, the cross-shareholdings have no effect on the retailer’s order strategy. Thus, it helps the capital-constrained retailer to acquire competitive advantage that he could be well-funded with external financing under cross-shareholdings.

KEYWORDS:

• Supply chain finance
• trade credit
• cross-shareholdings
• cash-constrained retailers
• Stackelberg game

Disclosure statement

No potential conflict of interest was reported by the authors.

Acknowledgement

The authors would like to thank the Editor-in-Chief and autonomous reviewers for the valuable comments, which greatly improved the quality of this presentation. Yuchen Pan is the corresponding author of this paper.

Additional information

Funding

This work was supported by the Fundamental Research Funds for the Central Universities, and the Research Funds of Renmin University of China, No. 21XNL019.

Notes on contributors

Desheng Wu

Desheng Wu is with the School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China, and also with the Stockholm Business School, Stockholm University, Stockholm, Sweden. He has authored or coauthored more than 100 papers in refereed journals such as Production and Operations Management, Decision Support Systems, Decision Sciences, Risk Analysis, IEEE TRANSACTIONS ON SYSTEMS MAN AND CYBERNETICS, etc. His research interests include enterprise risk management in operations, performance evaluation in financial industry, and decision sciences. Dr. Wu has been an Associate Editor/Guest Editor for the IEEE TRANSACTIONS ON SYSTEMS MAN AND CYBERNETICS, Omega, etc. He is elected member of Academia Europaea and the member of European Academy of Sciences and Arts.

Chenghao Zhang

Chenghao Zhang is currently working toward the master degree at the School of Economics and Management, University of Chinese Academy of Sciences, Beijing, China. His research interests are supply chain finance and data mining.

Yuchen Pan

Yuchen Pan is an assistant professor in the School of Information Resource Management, Renmin University of China, Beijing, China. He has authored or coauthored in refereed journals such as Journal of Management Information, Decision Support Systems, Information Sciences, IEEE Systems Journal, etc. His research interests are big data analysis, big data mining and recommender systems.

Alexandre Dolgui

Alexandre Dolgui is a Fellow of IISE, Distingished Professor and Head of Department at the IMT Atlantique, France. His research focuses on manufacturing line design, production planning and supply chain optimisation under uncertainty. He is the co-author of 5, co-editor of 20 books, he published 252 refereed journal papers, 30 editorials and 32 book chapters as well as over 400 papers in conference proceedings. He is the Editor in Chief of the International Journal of Production Research.