CUFE-BS Academic Seminar: Small LendingBig: Strategic Dual-channel Pricing Games with E-retailer Finance

Time: 12 September 2019, 10:00-12:00 AM

Location: Room 615, CUFE Business School

Speaker: Ms. Liu Yang

Abstract: Small and medium-sizeenterprises (SMEs) often face obstacles in reaching consumers and obtainingsufficient capital for their production and operations processes. Owningchannel advantages and rich transaction data regarding suppliers’ sales,inventory, and credits, e-commerce platforms (henceforth, e-retailers) canoffer online distribution channels and online financing service for SMEs tofacilitate their distribution and alleviate their capital constraints. This studyanalyzes the pricing competition in a dual-channel supply chain consisting ofone capital-constrained supplier and one e-retailer providing finance. Thesupplier can sell her products either through the e-retailer using the onlinechannel or through her direct offline channel. The e-retailer offers finance tothe supplier if she is capital-constrained. We examine the equilibrium priceand the associated optimal quantity and profits in dual channels when suppliermay face capital constraint and compete with e-retailer horizontally orvertically. We find that e-retailer finance is a value-added service fore-retailer and that the increased profits generated from financing offeringscan offset the lowered revenue in the online distribution channel. E-retailerfinance can increase market share, which benefits the supplier. Participatingin the vertical competition through announcing pricing decisions earlier thandoes the supplier can help the e-retailer seize the first-mover advantage.Further, we present the value of e-retailer finance and examine the impact ofvarious financing, operational, and consumer-related factors on pricing andchannel structure. We also provide guidelines for e-retailers andfinancing-constrained suppliers to utilize e-retailer finance to optimize theirdual-channel structure and to make optimal pricing decisions.