Trade Credit Pricing with Retailer’s Capital Heterogeneity

This paper studies a supplier’s optimal trade credit provision and pricing decisions when there is capital heterogeneity among its retailers. To this end, we start with a baseline model where there is a capital-constrained retailer requiring trade credit financing from the supplier. We identify a capital threshold at which providing trade credit or not is indifferent to the supplier. The identification allows us to extend our analysis to a supply chain including various retailers. We find that the supplier should provide trade credit to retailers whose capital level is lower than the threshold. Those retailers who need trade credit but have relatively high capital will be excluded. Thus, our results provide managerial insights for the supplier to decide which retailers should be provided with trade credit.