Impacts Of Trade Credit On The Pricing Decisions Of Complementary Products

Although extending trade credit takes up the cash flow of the suppliers and then increases their receivables and related costs,trade credit is widely used in trading.In a supply chain that consists of two suppliers,whether adopting trade credit and adopting what trade credit policy will have different effects on both suppliers when their products are of different correlations.To explore the impacts of trade credit on pricing decisions of complementary products,and guide suppliers to make decisions on trade credit policy,a Bertrand model of a two-echelon supply chain consisting of two duopolistic suppliers who provide complementary products to a monopolistic retailer in three scenarios is established:no supplier extends trade credit;only one supplier extends trade credit;and both suppliers extend trade credit.Game-theory approach is used to obtain the optimal solutions in each scenario in asymmetric structure,and make a comparison of the optimal solutions in different scenarios.Then,the profits of both suppliers and the retailer in three scenarios in symmetric structure are compared.Through comparison,the conclusion that the impacts of trade credit on the profit of each member are dependent on the difference of opportunity cost rates between the upstream suppliers that extend trade credit and the downstream retailer is obtained.When the value is negative,one supplier can raise its profit through extending trade credit,and the practice can enhance the other supplier and the retailer' s profits simultaneously.Besides,both suppliers adopting trade credit simultaneously benefits all participants most.Interestingly,while when the value is positive,trade credit policy hurts the profits of all members,and no one extending trade credit benefits all the participants most.Finally,the two suppliers always adopting the same trade credit strategy benefits their own and the whole supply chain.