A Review of Stackelberg Game Theory Model on Trade Credit

Over the years, game theory has been used extensively to study interactions between the supplier and the retailer in business environment. Recently, a number of researchers have applied Stackelberg game theory on trade credit in centralized and decentralized channels. In this work, we reviewed the assumptions of the Stackelberg game theory model, its solution, its limitations and further extensions were also considered. Furthermore, how the Stackelberg game model applies to trade credit has been analyzed.&nbsp

Virtual transshipments and revenue-sharing contracts in supply chain management

This dissertation presents the use of virtual transshipments and revenue-sharing contracts for inventory control in a small scale supply chain. The main objective is to maximize the total profit in a centralized supply chain or maximize the supply chain\u27s profit while keeping the individual components\u27 incentives in a decentralized supply chain. First, a centralized supply chain with two capacitated manufacturing plants situated in two distinct geographical regions is considered. Normally, demand in each region is mostly satisfied by the local plant. However, if the local plant is understocked while the remote one is overstocked, some of the newly generated demand can be assigned to be served by the more remote plant. The sources of the above virtual lateral transshipments, unlike the ones involved in real lateral transshipments, do not need to have nonnegative inventory levels throughout the transshipment process. Besides the theoretical analysis for this centralized supply chain, a computational study is conducted in detail to illustrate the ability of virtual lateral transshipments to reduce the total cost. The impacts of the parameters (unit holding cost, production cost, goodwill cost, etc.) on the cost savings that can be achieved by using the transshipment option are also assessed. Then, a supply chain with one supplier and one retailer is considered where a revenue-sharing contract is adopted. In this revenue-sharing contract, the retailer may obtain the product from the supplier at a less-than-production-cost price, but in exchange, the retailer must share the revenue with the supplier at a pre-set revenuesharing rate. The objective is to maximize the overall supply chain\u27s total profit while upholding the individual components\u27 incentives. A two-stage Stackelberg game is used for the analysis. In this game, one player is the leader and the other one is the follower. The analysis reveals that the party who keeps more than half of the revenue should also be the leader of the Stackelberg game. Furthermore, the adoption of a revenue-sharing contract in a supply chain with two suppliers and one retailer under a limited amount of available funds is analyzed. Using the revenue-sharing contract, the retailer pays a transfer cost rate of the production cost per unit when he obtains the items from the suppliers, and shares the revenue with the suppliers at a pre-set revenue-sharing rate. The two suppliers have different transfer cost rates and revenue-sharing rates. The retailer will earn more profit per unit with a higher transfer cost rate. How the retailer orders items from the two suppliers to maximize his expected profit under limited available funds is analyzed next. Conditions are shown under which the optimal way the retailer orders items from the two suppliers exists

Supply Chain Management: Supplier Financing Schemes and Inventory Strategies

This dissertation addresses a few fundamental questions on the interface between supplier financing schemes and inventory management. Traditionally, retailers finance their inventories through an independent financing institution or by drawing from their own cash reserves, without any supplier involvement (Independent Financing). However, suppliers may reduce their buyers' costs and stimulate sales and associated revenues and profits, by either (i) adopting the financing function themselves (Trade Credit), or (ii) subsidizing the inventory costs (Inventory Subsidies). In the first part (Chapter 2) we analyze and compare the equilibrium performance of supply chains under these three basic financing schemes. The objective is to compare the equilibrium profits of the individual chain members, the aggregate supply chain profits, the equilibrium wholesale price, the expected sales volumes and the average inventory levels under the three financing options, and thus provide important insights for the selection and implementation of supply chain financing mechanisms. Several of the financing schemes introduce a new type of inventory control problem for the retailers in response to terms specified by their suppliers. In Chapter 3 we therefore consider the inventory management problem of a firm which incurs inventory carrying costs with a general shelf age dependent structure and, even more generally, that of a firm with shelf age and delay dependent inventory and backlogging costs. Beyond identifying the structure of optimal replenishment strategies and corresponding algorithms to compute them, it is often important to understand how changes in various primitives of the inventory model impact on the optimal policy parameters and performance measures. In spite of a voluminous literature over more than fifty years, very little is known about this area. In Chapter 4, we therefore study monotonicity properties of stochastic inventory systems governed by an (r; q) or (r; nq) policy and apply the results in our general theorems both to standard inventory models and to those with general shelf age and delay dependent inventory costs

Trade credit contracts : design and regulation

This paper provides a theoretical analysis of trade credit within a real options framework. We show that under trade credit the buyer delays the decision to stop production, getting closer to the supply chain optimal stopping decision. Therefore, trade credit may serve as a coordination device. The supplier can optimally choose to offer trade credit for free, since this will guarantee her business for a longer period of time. Optimal trade credit design is analyzed for an integrated supply chain (cooperative solution) and for external procurement (Nash bargaining and Stackelberg solutions). When regulation imposes a limit on trade credit maturity, the wholesale price is reduced, trade credit decreases and internal procurement increases. The model's predictions are in line with recent empirical evidence on the effects of regulation in the retail industry

Online peer-to-peer lending platform and supply chain finance decisions and strategies

Online peer-to-peer (P2P) lending platform is an emerging FinTech business model that establishes a link between investors and recipients of capital in supply chains (SCs). Businesses face capital constraints impacting directly on their final product price and demand. This article studies optimal decisions and operational strategies in a logistics network considering two capital-constrained manufacturers who produce products of different qualities and sell them to a retailer having deterministic demand over a specific period. The high quality product manufacturer borrows capital through an online P2P lending platform with a service fee, while the low quality product manufacturer pre-sells products for competing with the high quality product manufacturer. In this study, we find optimal prices of the SC participants, service rate of the online P2P platform and percentage of the pre-ordering quantity of the retailer. We analyse optimal Stackelberg and Nash equilibrium of the SC participants. We find that an increase in the amount of opportunity cost will cause a decrease in the pre-ordering quantity of the retailer affecting the SC profit in numerous ways. The online P2P lending platform should consider the amount of the retailer’s target profit in determining the platform’s service rate. We posit some practical insights based on our numerical study and observations for SC managers enabling them to take appropriate measures about their optimal strategies according to the networks’ existing economic conditions

Optimal pricing strategy in a competitive retailing setting

vii, 96 leaves : illustrations (some colour) ; 29 cmIncludes abstract and appendix.Includes bibliographical references (leaves 94-96).This thesis is interested in the conditions for retailers who request financial assistance from the bank. The bank evaluates the payoff ability of the retailers based on the marketing influence and the leadership status. To examine the impact of these two measurements on the bank`s decision, the problem is modeled using three different games: 1) Supplier Stackelberg; 2) Retailer Stackelberg; 3) Nash equilibrium. Based on the optimal solutions, I conduct sensitivity analyses and use empirical evidence to illustrate the impacts on prices, demands, and profits of the retailer and the supplier, as well as on the bank`s revenue and the retailer`s financing cost. Results show that as more effort the retailer puts on promoting its marketing influence, its profit first increases and then decreases. However, the financing cost keeps increasing. Besides, when the retailer is the supply chain leader, it gains a high profit and a low financing cost

Capital constrained supply chain problem.

Chen, Chen.Thesis (M.Phil.)--Chinese University of Hong Kong, 2010.Includes bibliographical references (p. 89-94).Abstracts in English and Chinese.Table of Contents --- p.viChapter 1 --- Introduction --- p.1Chapter 2 --- Literature Review --- p.6Chapter 2.1 --- Operations and Finance Interface --- p.6Chapter 2.1.1 --- Single Period Setting --- p.6Chapter 2.1.2 --- Multi-Period Setting --- p.11Chapter 2.2 --- Trade Credit --- p.13Chapter 2.3 --- Supply Chain Contracts --- p.14Chapter 3 --- The Model --- p.16Chapter 3.1 --- Model Description --- p.16Chapter 3.1.1 --- The Basic Setting --- p.17Chapter 3.1.2 --- The Bank Loan Setting --- p.19Chapter 3.1.3 --- The Trade Credit Setting --- p.19Chapter 3.2 --- Demand Distribution Properties --- p.22Chapter 4 --- Retailer's Perspective --- p.24Chapter 4.1 --- The Single Period Problem --- p.24Chapter 4.2 --- The Basic Setting --- p.33Chapter 4.3 --- The Bank Loan Setting --- p.37Chapter 4.4 --- The Trade Credit Setting --- p.43Chapter 4.5 --- Summary --- p.47Chapter 5 --- Supplier's Perspective --- p.48Chapter 5.1 --- Single Period Results --- p.48Chapter 5.1.1 --- The Basic Setting --- p.49Chapter 5.1.2 --- The Bank Loan Setting --- p.53Chapter 5.1.3 --- The Trade Credit Setting --- p.60Chapter 5.2 --- Two-Period Problem --- p.69Chapter 5.3 --- Summary --- p.71Chapter 6 --- Numerical Study and Insights --- p.72Chapter 6.1 --- The Single Period Supply Chain --- p.72Chapter 6.1.1 --- Impact of Different Financing Schemes --- p.73Chapter 6.1.2 --- Supply Chain Efficiency --- p.77Chapter 6.2 --- Capital Constrained Retailer in Two-Period Setting --- p.79Chapter 6.2.1 --- Impacts of Different Financial Schemes on the Retailer --- p.79Chapter 6.2.2 --- Saving for the Future --- p.82Chapter 6.2.3 --- Comparison of the Single- and Two-Period Settings --- p.83Chapter 7 --- Conclusion and Future Research --- p.84AppendixA Log-concavity of Some Common Distributions --- p.87Bibliography --- p.8

The Cash Flow Advantages of 3PLs as Supply Chain Orchestrators

With an increasingly open global economy and advanced technologies, some third-party logistics providers (3PLs), such as Eternal Asia, have emerged as supply chain orchestrators, linking buyers with manufacturers worldwide. In addition to their traditional transportation services, these orchestrators provide procurement and financial assistance to buyers in the supply network, especially small- and medium-sized enterprises (SMEs) in developing countries. Oftentimes, the 3PLs can obtain payment delay arrangements from the financially stronger manufacturers, which in turn can be partially extended to the SME buyers, alleviating their high costs of capital. To illustrate the efficiency improvements of the aforementioned practice, we use a model to explicitly capture the cash-flow dynamics in a supply chain consisting of a manufacturer, a buyer, and a 3PL firm and explore the conditions under which this innovation benefits all parties in the supply chain so that the business model is sustainable. We characterize these conditions and show that the supply chain profit can be higher under leadership by the 3PL than by the manufacturer. The intermediary role of the 3PL is crucial, in that its benefit may vanish if the manufacturer chooses to directly grant payment delay to the buyers. We demonstrate that the benefit is more likely to occur with more buyers. We further identify the unique Nash bargaining solution for the transportation time and the payment delay grace period