495 / 2024-04-25 16:46:48

Invisibility of financial terms in a competing supply chain

competing supply chain, financial terms invisibility, financial distress, equilibrium information structure

The practice of maintaining the confidentiality of financial terms is a prevalent strategy employed by manufacturers, while the extant literature generally assumes that financial terms are visible to all supply chain participants. To address this issue, we focus on investigating the impact of financial terms invisibility on supply chain performance. We conduct a manufacturer-led Stackelberg game analysis in a competing supply chain, comprising of a manufacturer and two retailers. By deriving and comparing the equilibrium outcomes, we examine the equilibrium information structure for the manufacturer and the effects of financial terms invisibility and financial distress on the performance of each participant. Results show that when both retailers are well-capitalized, the manufacturer may provide differentiated financial terms to symmetrical retailers, resulting in ex post asymmetrical profits between the retailers. In addition, our findings reveal that when one retailer is financially constrained, the manufacturer and the competing retailer with an information advantage may potentially achieve a ``win-win" situation within an asymmetric information structure. Notably, the manufacturer always prefers to cooperate with financially distressed retailers over well-capitalized ones. Interestingly, it emerges that a retailer with financial distress may perform better compared to when she is well-capitalized.