Inventory financing game between retailer and banker under outsourcing structure of inhouse consignment

Abstract

The paper considers a three-tier credit chain consisting of a bank, a logistic company and a retailer. The paper analysis the following outsourcing structure implemented by top-tier bank: inhouse consignment, under which the bank signs independent contracts with the logistic company and the retailer. Under the assumption that the logistic company cannot change its decision, the paper investigates the equilibrium behavior of the decentralized credit chain with non-cooperation newsvendor under demand uncertainty. The model includes the case of a risk-neutral bank offering loan to a noncooperative risk-neutral retailer who mortgages its inventory to the bank to finance more inventory. The retailer faces a random demand in a single sales season as in the classical newsvendor problem. By game theorem, the paper gives the optimal loan to value to retailers with different initial capital.