Should a retailer opt for an advance selling strategy? Perspectives from a capital-constrained supply chain

Problem Definition and Methodology: The practice of some enterprises using Internet platforms/e-commerce platforms to raise funds for purchasing/producing products through the implementation of advance selling has received widespread attention. Consumer-oriented advance selling financing has emerged as a new financing tool. However, it is evident that not all capital-constrained retailers adopt advance selling financing because of possible influences from upstream producers. Accordingly, we apply a game-theoretic approach to discern how advance selling impacts all stakeholders and the overall performance. The producer first charges the purchasing price, and subsequent inventory financing decisions lie with the retailer, who may opt for trade credit alone (TC), advance selling alone (AS), or a combination of both (AT), assuming the producer offers delayed payments to its downstream. Results: We find that when adopting the advance selling financing strategy, the retailer should offer consumers an early purchase price discount. When a capital-constrained retailer adopts the advance selling financing strategy, it needs to consider the number of informed consumers. When there are relatively few informed consumers and the product cost is low to moderate, the producer tends to set a lower wholesale price to encourage the retailer to adopt AT to optimize the cash flow. On the contrary, the producer raises the price, prompting the retailer to rely on TC. However, when there are more informed consumers, the retailer is more inclined to adopt AS. At this time, the producer's pricing strategy cannot influence the retailer's choice, leaving the producer in a passive position. This indicates that the advance selling strategy is not always beneficial to the producer in a capital-constrained decentralized supply chain, which is inconsistent with the situation in a well-funded supply chain. The model is then extended to a stochastic demand scenario, where, in the context of a large scale of informed consumers, the randomness of market demand significantly alters the revenue structure between the retailer and the producer.