A Game-Theoretic Credit Period and Promotion Model in a Supplier-Retailer Channel

Abstract

It has been established that trade credit can be influenced by a lot of factors. However, no specific function has been used to neither represent these factors nor consider their effects. This paper considers a supplier-retailer Stackelberg game in which the supplier as the channel leader supplies credit goods to the retailer who in-turn sells to the consumers. It uses a credit function based on credit period, supplier’s price margin and product promotion effort to model the players’ payoffs. The work considers two game scenarios: a situation involving the provision of trade credit and a situation without trade credit. The work obtains a closed-form solution for the credit period for the credit provision scenario, and the promotion efforts and payoffs for both scenarios, and shows that credit period prolongation may not be in favour of the retailer, and that the retailer can attain a larger payoff than the supplier. It also shows that the retailer’s margin is very crucial for both channel scenarios, and observes that the players are better-off with trade credit.