Joint Bank Financing and Open Account Financing: Optimal Decisions and Comparison

This paper studies the performance of joint bank financing and open account financing in a supply chain made up of a supplier and a retailer which is faced with capital constraint. After establishing a newsvendor model and a Stackelberg game model, we can derive the final wealth and optimal decision of each party and further compare these two schemes. The result indicates that when the bank is in a perfectly competitive market, these two schemes will generate the same final wealth to the retailer and the supplier; but in an imperfect competitive market, which scheme is better depends on whether the interest rate that the bank sets is low enough.