A guarantee credit model with substitutable product competition

Abstract

To understand how retailer competition affects supply chain partners’ operational and financial decisions under guarantee credit financing (GCF), we examine a supply chain system composed of a capital-constrained retailer, a capital-abundant retailer and a manufacturer in the presence of substitutable product competition. By identifying the strategic interaction among the retailers and the manufacturer, we find that when the production cost is low, the retailers’ equilibrium order quantities depend on their optimal equilibrium profits, otherwise on the dominant retailer's and the manufacturer's optimal equilibrium profits. If both GCF and BCF are viable, then when the production cost is smaller than a certain threshold, GCF is the unique financing equilibrium, and BCF otherwise. We also analyse the extensions of general demand distribution and positive risk-free rate under GCF. We also find that competition hurts the weak retailer's profit but increases the dominant retailer's profit if the manufacturer's production cost exceeds a certain threshold.

KEYWORDS:

• Guarantee credit financing
• bank credit financing
• product substitutability
• competition
• Nash equilibrium

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 http://www.cmbc.com.cn/sy/cd/sdt/index.htm; https://www.drcbank.com/drcbank/xwjr/hxqydb

2 https://www.hairongyi.com/entf; https://www.hairongyi.com/member/credit/welcome

Additional information

Funding

This paper was supported by the National Natural Science Foundation of China (grant numbers 71672199 and 72071216).

Notes on contributors

Qiangqiang Wang

Qiangqiang Wang, is a Ph.D. candidate in the Lingnan College at Sun Yat-sen University, Guangzhou, China. Wang's research interests include operation management and, interface between operation and finance. He has published in Applied Mathematical Modelling and others.

Bin Zhang

Bin Zhang, ([email protected]; corresponding author) is a professor and an associate dean in the Lingnan College at Sun Yat-sen University, Guangzhou, China. He received his Ph.D. degree in Management Science and Engineering at the University of Science and Technology of China. Zhang's research interests include operation management and supply chain financing. His work has been published in journals such as International Journal of Production Research, European Journal of Operational Research, Journal of the Operational Research Society, International Journal of Production Economics, Applied Mathematical Modelling, and Computers & Operations Research.