Financing Strategies For A Retailer Under The Option Contract

Option contracts are widely used in the supply chain of innovative products.However,more and more SMEs(small and medium enterprises)are facing the problem of capital constraints.The main object of this study is the retailers facing capital constraints in the process of implementing options.In order to study the effect of capital constraints on buyer's and seller's earnings in the process of implementing options,this paper first establishes a retailer's ordering model with capital constraints and a retailer's ordering model with sufficient capital.In order to compare the effect of bank financing to implement options and deferred payment of option fees on both buyers and sellers' earnings,this paper also establishes a capital-constrained retailer's ordering model under bank financing and deferred payment.In order to draw a conclusion through comparative analysis,this paper introduces the uniform distribution function of market demand satisfying a certain range into different ordering models,and subtracts the retailer's income expression after financing and the retailer's income expression with capital constraints,and judges the financing effectiveness by the positive and negative results of subtraction.The same method is used to compare the two financing modes which is better for the improvement of the buyer's and seller's earnings.Through comparison,this paper finds that financial constraints not only reduce the retailer's ordering enthusiasm,but also always inhibit the retailer's revenue.Whether bank financing or deferred payment is adopted to solve the problem of capital constraints in the execution of options,it can improve the expected returns and enthusiasm of retailers.For the supplier,if the retailer has the possibility of executing the option capital constraint,the expected return of the supplier itself may be higher than that of the retailer facing sufficient funds.This is because suppliers may take greater risks in the face of well-funded retailers.This paper also finds that although the retailer's revenue can be improved by financing,the supplier's revenue can not be fully guaranteed to improve.For retailers,the choice of financing channels is mainly based on the size of financing costs.But for suppliers,when retailers are willing to pay the same financing costs,suppliers always hope that retailers choose to solve the problem of capital constraints.