Manufacturer encroachment with capital-constrained competitive retailers

Li-Hao Zhang and Cheng Zhang

European Journal of Operational Research, 2022, vol. 296, issue 3, 1067-1083

Abstract: With the development of e-commerce, manufacturers now have the opportunity to compete with existing retail channels by introducing their direct channels. Encroachment weakens the strength of retail channels, which may affect the manufacturer's decision on whether to provide trade credit financing to retailers. This study investigates the strategic interaction between manufacturer's encroachment and retailers’ financing choices (trade credit financing or external financing) in a supply chain consisting of a manufacturer and two capital-constrained retailers. We find that only encroachment cost below a certain threshold will make the manufacturer encroach on the market, while manufacturer encroachment is harmful to capital-constrained retailers. Surprisingly, these retailers can expand the ratios of equity financing in anticipation of manufacturer encroachment, which is a new strategic role of equity financing. In addition, the more intense the channel competition (the larger the credit gap between the two retailers) is, the less (more) likely the manufacturer will be to encroach. Further, we find that retailers prefer trade credit (external) financing at a low (high) bank loan interest rate in a non-encroachment scenario, while they prefer external financing in an encroachment scenario. However, the manufacturer always prefers the case that both retailers choosing external financing. Finally, there are financing choice conflicts between the manufacturer and retailers in the non-encroachment scenario. A high-credit retailer choosing trade credit financing may make all members achieve a Pareto improvement when the credit gap between two retailers is large; otherwise, both retailers choosing external financing is a Pareto improvement.

Keywords: Game theory; Manufacturer encroachment; Financing decision; Channel competition; Capital-constrained retailers (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221721004550
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:296:y:2022:i:3:p:1067-1083

DOI: 10.1016/j.ejor.2021.05.027

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().