Bargaining equilibrium in a two-echelon supply chain with a capital-constrained retailer

Abstract

We investigate the bargaining equilibrium in a two-echelon supply chain consisting of a supplier and a capital-constrained retailer. The newsvendor-like retailer can borrow from a bank or use the supplier's trade credit to fund his business. In the presence of bankruptcy risk for both the supplier and retailer, with a wholesale price contract, we model the player's strategic interactions under the Nash and Rubinstein bargaining games. In both financing schemes, the Nash bargaining game overcomes the double marginalization effect under the Stackelberg game and achieves supply chain coordination. The Rubinstein bargaining game realizes the Pareto improvement of the supply chain. The player with stronger bargaining power always prefers to initially offer a contract under the Rubinstein bargaining game to obtain greater expected profit. Furthermore, we characterize the conditions under which bargaining power and discount factor affect the bargaining equilibrium. We numerically verify our theoretical results.