Retailer's credit preference under perfect competition Based on the Stackelberg model

Abstract

Trade credit is provided by suppliers to meet the purchase needs of retailers, playing a more and more important role in trade. In this paper, the effects of preferential credit on retailers' business decisions are investigated under capital constraints in a perfectly competitive market. In this game model, the loan competition conditions are considered when banks and manufacturers offer preferential credit to capital-constrained retailers. In the proposed model, different credit lines and preferential credit discount rates are mainly related to the exogenous collateral of retailers and the risk appetite of banks and manufacturers. The effects of bank financing and trade credit on a retailer's inventory decision are also discussed under different circumstances of whether the retailer's financing amount exceeds the credit limit. The equilibrium wholesale price and optimal order quantity of retailers under different circumstances are deduced. Moreover, the effects of discount rate, institutional risk preference and collateral quality on the two are obtained. These results reveal that the factors affecting the decision-making of retailers and manufacturers are also different in different situations.