Platform financing or bank financing in agricultural supply chains: The impact of platform digital empowerment

Abstract

Agricultural supply chains face multiple challenges, including fund shortages and the need for planting technology improvement. With the development of the platform economy, powerful platforms can address these challenges by providing farmers with digital technology empowerment and loan services. This study considers a two-echelon supply chain consisting of a platform and a farmer with yield uncertainty. We establish game-theoretic models with and without platform digital empowerment under bank financing and platform financing. Our main findings are as follow. First, the farmer benefits from empowerment when it reduces or slightly increases the farmer’s cost coefficient of planting technology application. Interestingly, there is a possibility that when the cost coefficient of empowerment is too low, the farmer is less likely to benefit from empowerment The platform will always benefit after the farmer accepts the empowerment. Second, if the bankruptcy risk and platform loan interest rate are low (high), both will choose platform (bank) financing. The platform is more willing to provide loan services to the farmer when the platform loan interest rate is low. Furthermore, platform financing can improve the platform digital empowerment level. The empowerment level increases with the bank loan interest rate, whereas it first decreases then increases with the platform loan interest rate. Third, under bank financing, cost-sharing contracts where one firm shares the other’s costs can achieve Pareto improvement. However, under platform financing, only when the platform shares the farmer’s cost can the supply chain achieve Pareto improvement.