Effect of interest rates on supply chain contract selection

Qing Zhu, Stephen M. Disney, Wei Xing and Yudong Wang

International Journal of Production Research, 2025, vol. 63, issue 21, 7865-7885

Abstract: We examine the effect of interest rates on index-based (IB) contracts. Specifically, we first explore how interest rates influence the selection of supply chain contracts and then analyse the contract equilibria in competitive scenarios. We consider a two-stage supply chain model involving two manufacturers supplying distinct but substitutable products to two retailers. Each manufacturer offers two contract options: a no-change price (NC) contract, serving as a benchmark, and an IB contract. The contract selection process is modelled as a two-stage Stackelberg game. We demonstrate that the manufacturers' profits are a decreasing convex function of the interest rate when it is incorporated into the IB contract. However, whether an IB contract has a positive effect on the rival manufacturer depends on the demand uncertainty and the correlation between the spot prices of the two products. At the equilibria of the contract game, differentiated contracts are found to exist. When the manufacturer offers an IB contract without interest rates, its impact on the rival manufacturer is either unconditionally positive or neutral. In situations where the spot prices of the two commodities exhibit a positive correlation, both manufacturers will choose to offer IB contracts.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00207543.2025.2507797 (text/html)
Access to full text is restricted to subscribers.

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:taf:tprsxx:v:63:y:2025:i:21:p:7865-7885

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TPRS20

DOI: 10.1080/00207543.2025.2507797

Access Statistics for this article

International Journal of Production Research is currently edited by Professor A. Dolgui

More articles in International Journal of Production Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().