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

This paper studies wholesale price contracts with risk constraints in a supply chain consisting of a sup-plier 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 aver-sion attitude plays an important role in determining the financing equilibrium. Contrasting with some existing studies, our results show that trade credit financing may lead to a win-win result only when the supplier's risk aversion threshold is moderate. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

This study examines wholesale price contracts in a supply chain with risk constraints, analyzing decisions related to contract design under trade credit and bank credit financing. The research highlights the role of risk aversion in determining financing equilibrium and suggests that trade credit financing can lead to a win-win outcome under moderate risk aversion thresholds.