Online finance with dual channels and bidirectional free-riding effect

Abstract This study examines a dual-channel supply chain structure, in which the retailer and e-commerce platform can free ride the other’s sales efforts and the e-commerce platform can provide online finance services to the capital-constrained supplier. This study proves that bidirectional free riding under online finance can provide extra benefits to supply chain participants such as boosting total market share and enhancing participants’ profits. Through the formulation of a comprehensive model incorporating the price substitution effect, the positive effect of free riding and the negative effect of being free ridden, and different sales efforts and associated cost factors, we examine the impacts of free-riding behavior and online finance adoption on optimal pricing, efforts, and quantity, as well as on channel structure, market share, and pricing competition. We found that, in the same free-riding scenario, more retailer and e-commerce platform efforts lead to higher pricing. Being free ridden motivates participants to input more effort. Our study proves connections exist between free riding and online finance. We find the adoption of online finance between the supplier and e-commerce platform influences the retailer’s efforts input and that the free-riding phenomenon between the retailer and e-commerce platform affects the supplier’s willingness to accept online finance. We also extend our analytics to different scenarios with stochastic demand or limited loan-offering options. This study’s findings can guide firms to better implement efforts and pricing, adjust channel structure and use online finance to increase profits.