Pricing strategies for dual-channel supply chains under a trade credit policy

Abstract

This paper discusses the impact of a trade credit policy on alleviating conflicts arising on a dual-channel supply chain that includes one manufacturer and one value-added retailer. We use the Stackelberg game to model the problem and characterize optimal pricing strategies for each supply chain partner, examining different circumstances in terms of retail price and trade credit contracts. When a consistent price strategy is applied in the dual channels under conditions of an exogenous credit period, trade credit can help both partners to achieve win-win situations in the following circumstances: (1) when the retail channel's market share is small and the retailer's interest rate is high; or (2) when the retail channel's market share is large and the retailer's interest rate is lower than the manufacturer's. The study also concludes that when an inconsistent price strategy is applied, a trade credit contract can alleviate channel conflicts when the retailer's interest rate is higher than the manufacturer's. Otherwise, the partners may terminate cooperation. However, when the manufacturer has the power to determine and set the credit period, trade credit cannot alleviate channel conflicts under consistent price and inconsistent price scenarios.