In a product market with price-sensitive demand, we examine a supply chain consisting of one manufacturer and one capital-constrained retailer. The retailer may purchase by borrowing by securing confirmed warehouse financing (CWF) from a competitive bank or the manufacturer's trade credit financing (TCF), provided that it is also to the latter's benefit to extend TCF. We obtain the manufacturer's optimal pricing decision in the two financing modes under the wholesale price contract that coordinates the supply chain given a wider range of wholesale prices in CWF. We find that CWF is more suitable for the customer segment for which the unit retail price is low and demand is stable, so the product can be monetized quickly; TCF is suitable for the customer segment for which the unit retail price is high and has a high price elasticity of demand and hence for long-term investment. The repurchase price is an important factor affecting the participants' selection of CWF.
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CITIC Bank's CWF business process
Sequence of events
The Pareto region under CWF
The Pareto region under TCF
The manufacturer's profit under CWF and TCF with different retail prices
The manufacturer's profit under CWF and TCF with different price elasticities of demand
The supply chain members' profits under CWF with different repurchase prices