Cooperative financing mode in a capital constrained supply chain

The increased financing demand on retailers and the risk aversion from banks have brought extensive attention on group lending (GL), the emerging bank loan mode in addition to credit financing (CF), which requires the retailers to apply for a group loan with joint liability and the bank to set uniform interest rates. In order to investigate how GL impacts the operational decisions and profits in the supply chain, we consider two capital-constrained retailers who source from one supplier via the CF or GL loan from a risk-averse bank. We demonstrate that compared with CF, GL enables the retailers to cooperate on financing and compete on product sale, which induces a co-opetition that motivates the retailers to either increase order and loan amounts due to the reduction of financing cost or reduce the order and loan amounts due to the constraint of cooperation. Moreover, GL may benefit or hurt the supply chain members, contingent on the wholesale price and the retailers’ future revenue. Surprisingly, a higher bank risk aversion that widens the financing cost gap between CF and GL may enable the retailers to prefer CF that induces higher financing costs than GL. We also reveal that when wholesale price is endogenous, GL might deteriorate or alleviate the double marginalization issue, and it could be Pareto-improved by partial joint liability. Our research provides managerial insights for the retailers’ financing mode choices and the market managers’ supply chain management.