New product financing decision: Crowdfunding, bank or supply chain?

Abstract

Many enterprises suffer from financial distress. Bank financing is a widely and traditional financing source. Recently, supply chain financing has emerged as an alternative, where capital-constrained enterprises could seek financial help from their upstream or downstream. In addition, crowdfunding is also risen as a novel financing source for innovative products, allowing the capital-constrained manufacturers to raise the initial funding from a crowd of investors. We study the capital-constrained manufacturer's optimal financing strategy when the new product requires a critical component from a monopoly and capital-abundant supplier. We conduct an equilibrium analysis to investigate the optimal component ready timing and wholesale pricing decisions under different financing strategies. Firstly, we find that the supplier's optimal component ready time is always later than the manufacturer's optimal preannounced time under crowdfunding. With information asymmetry under crowdfunding, both the manufacturer and supplier strive to release the product on time with high initial demand and low demand decay rate and encounter a Prisoner's Dilemma with low initial demand level and high demand decay rate under crowdfunding. Besides, our work shows that the supplier's optimal component ready time under bank financing is the earliest. We find that crowdfunding is a dominant strategy if the demand window and financing target are high while supplier financing interest is low. However, bank financing stands out when the demand window is short while the financing target is high or the demand window is large while the financing target is low. In addition, supply chain financing can outplay bank financing only when the sales window is minor while the financing target is lower. Moreover, our results suggest that the supplier will provide a supply chain financing service in two cases: the financing target is high while the interest rate is medium, or both the financing target and the interest rate are low. Our extended analysis presents that the main qualitative results hold continually when the manufacturer conducts a uniform wholesale price under different financing strategies.