Financing strategy selection and coordination considering risk aversion in a capital-constrained supply chain

Abstract

<p style='text-indent:20px;'>By applying Stackelberg game theory, this paper investigates the supply chain with a risk-neutral retailer and a risk-averse supplier, measuring risk-averse behavior by using conditional value-at-risk (CVaR). The equilibrium solutions of the supplier's wholesale price and the retailer's order quantity are obtained under two financing strategies: supplier financing (SF) and supplier investment (SI). It is found that the supplier's risk aversion is a crucial factor affecting both parties' financing decisions, and the supplier should offer different financing strategies to the retailer based on his risk attitude and the profit-sharing coefficient. However, the retailer prefers SF regardless of the supplier's risk aversion. Taking bank credit financing as a basic model, the advantages of SF and SI have been investigated. A Pareto improvement region for the two finance strategies has been identified and some suggestions are provided for the supplier's optimal utility. Then we extend to the situation that both parties are risk-averse and use the financing cost-sharing mechanism to achieve centralized decision-making.</p>