A STACKELBERG GAME-THEORETIC TRADE CREDIT MODEL WITH CREDIT RESPONSE TIME LENGTH THROUGH CREDIT FUNCTION

Abstract

The nature and effect of credit period CP has been one of the major focuses and concerns in modelling TC settings. Only very little has been done on the distance in time between credit periods of channel members, which can be referred to as credit response time length. This work considers a supplier-retailer supply channel in which the supplier provides trade credit to the retailer, and allows a delayed repayment time. The retailer in-turn allows a delayed repayment time, and also aids sales by engaging in product promotion. It models the channel members’ payoff using credit function, and explores two channel structures: a situation involving TC, and another without TC. It obtains a closed-form optimal promotion effort, credit period and Stackelberg equilibrium solutions for the payoffs. The work examines the effect of the supplier’s CP and credit response time length on promotion and payoffs. It shows that while large credit period provision from the supplier will translate into large promotion effort, a large credit response time length – early repayment – requires a large promotion effort. It further shows that both players’ payoffs continuously increase with credit period, with the supplier benefiting more from the increase. On the other hand while the supplier’s payoff continuously reduces with increasing credit response time length, the reverse is the case with the retailer. Being the channel leader, the supplier’s interest, can lead to making policies that can constrain the retailer to delay repayment until his optimal profit is achieved. In general the players perform better with credit scenario than no-credit scenario. Further, the supplier can opt for very early repayment provided he has a favourable agreement which will earn him larger payoff than what obtains in the other scenarios since the channel payoff in this situation is larger.