A guarantee credit model with substitutable product competition

To understand how retailer competition affects supply chain partners’ operational and financial decisions under guarantee credit financing (GCF), we examine a supply chain system composed of a capital-constrained retailer, a capital-abundant retailer and a manufacturer in the presence of substitutable product competition. By identifying the strategic interaction among the retailers and the manufacturer, we find that when the production cost is low, the retailers’ equilibrium order quantities depend on their optimal equilibrium profits, otherwise on the dominant retailer's and the manufacturer's optimal equilibrium profits. If both GCF and BCF are viable, then when the production cost is smaller than a certain threshold, GCF is the unique financing equilibrium, and BCF otherwise. We also analyse the extensions of general demand distribution and positive risk-free rate under GCF. We also find that competition hurts the weak retailer's profit but increases the dominant retailer's profit if the manufacturer's production cost exceeds a certain threshold.