Journal article

Mean-variance analysis of wholesale price contracts with a capital-constrained retailer: Trade credit financing vs. bank credit financing

Honglin Yang, Wenyan Zhuo, Lusheng Shao, Srinivas Talluri

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH | ELSEVIER | Published : 2021

Abstract

This paper studies wholesale price contracts with risk constraints in a supply chain consisting of a supplier and a capital-constrained retailer. A newsvendor-like retailer may borrow from a bank or use trade credit to fund his business. We construct a mean-variance model to analyze the decisions involved in the design of the wholesale price contract under both trade credit financing and bank credit financing. We characterize the conditions under which the supplier is willing to provide trade credit and those under which the retailer prefers bank credit or trade credit. We find that the supply chain member's risk aversion attitude plays an important role in determining the financing equilibr..

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Grants

Awarded by Ministry of Education in China of Humanities and Social Science Project


Awarded by National Natural Science Foundation of China


Funding Acknowledgements

This research is supported by the Ministry of Education in China of Humanities and Social Science Project under Grant no. 19YJC630242 and by the National Natural Science Foundation of China under Grant nos. 72071072, 71571065, 71901117, 71521061 and 71790593.