Retailer financing: On the dual advantages of profit and information transparency

Abstract

Retailer financing has gained popularity as a means to alleviate capital constraints and enhance supply chain operations. However, its implementation poses significant challenges, particularly in supply chains characterized by asymmetric information, where varying levels of knowledge about product quality complicate decision-making and often diminish the potential benefits of financing. To address this issue, we develop an analytical model to examine the benefits that retailer financing can bring to all parties, especially whether it can incentivize an informed firm to initiatively share information in the presence of asymmetric quality information. First, we present that retailer financing can lead to a “win–win–win” situation for the manufacturer, retailer and consumers, as the firms’ capital flows within the whole supply chain and boosts the production output. Second, we find that, in the presence of asymmetric quality information between the retailer and manufacturer, the retailer may provide financing services to motivate an informed manufacturer to initiatively share quality information. The strategic information sharing becomes dominant when the manufacturer’s production cost is high and initial capital is moderate. Third, our analysis indicates that the retailer’s willingness to provide financing and the manufacturer’s willingness to initiatively share quality information exert a mutual promotion effect, enhancing information transparency in the supply chain. We also extend our analysis to an alternative game sequence and a competition environment.