Selling to the newsvendor through debt-shared bank financing

Debt-shared bank financing, as an innovative and collaborative financing scheme, allows the supplier to (partially) share the retailer’s bank loan obligation, including principal and interest. We study the operational and financial decisions of a chain with a supplier (Stackelberg leader) selling to a capital-constrained retailer via a debt-shared contract. We derive the equilibrium debt-shared coefficient, wholesale price, order quantity and bank’s interest rate with the retailer in different wealth regions. The very poor retailer always accepts debt-sharing and earns a profit, even if the supplier sets the wholesale price up to the retail price. The medium poor retailer might enter a supplier’s debt-sharing hole (a retailer’s wealth region) and acquire zero profit, by using debt-sharing with a wholesale price up to the retail price. For the medium poor retailer outside the hole or the medium rich retailer, the supplier offers either an optimal debt-shared bank financing contract or an optimal price-only contract at her benefit, mainly depending on the production cost and the retailer’s capital. Under debt-shared bank financing, both the supplier’s profit and the chain’s efficiency improve. The retailer might overstock when the production cost is high. Computational studies show the not very rich retailer’s profit is a bowl-shaped function of his capital and the bottom is the hole. The very poor retailer might earn a larger profit than under the optimal price-only contract. The supplier’s profit is unimodal and it achieves globally optimum in the hole (at the upper bound of the hole if production cost is low).