Impacts of trade credit on pricing decisions of complementary products

Da Ren, Yanfei Lan, Changjing Shang, Jiahe Wang, Chenlin Xue

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Abstract

To explore the impacts of trade credit on the pricing decisions of complementary product manufacturers, we establish a Bertrand model of two-echelon supply chains. Such a supply chain consists of two duopolistic suppliers that provide complementary products to a monopolistic retailer in three scenarios: 1) no supplier extends trade credit, 2) only one supplier extends trade credit, and 3) both suppliers extend trade credit. We find that the impacts of trade credit on the profit of each supply chain member are dependent on the difference in the opportunity cost between the upstream suppliers that extend trade credit and the downstream retailer. If the value is negative, one supplier will increase its profit by extending trade credit, thereby enhancing the profits of the other supplier and the retailer simultaneously. Further, if the value is negative, both suppliers adopting trade credit will provide more benefits to the whole supply than only single supplier adopting it. On the contrary, if the value is positive, no party extending trade credit will benefit all participants the most.

Original languageEnglish
Article number106580
JournalComputers and Industrial Engineering
Volume146
Early online date03 Jun 2020
DOIs
Publication statusPublished - 01 Aug 2020

Keywords

  • Complementary product
  • Pricing decision
  • Production modeling
  • Supply chain management
  • Trade credit

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