Selling To A Financially Constrained E-Commerce Retailer With Bankruptcy Cost And Tax

Although it is well-known that a firm's decisions are affected by its financial constraints and tax rate, few studies have investigated a financially constrained e-commerce supply chain when both bankruptcy cost and tax are considered. This paper fills this gap in the literature by analysing an e-commerce supply chain with a financially constrained e-commerce retailer (e-tailer) who faces uncertain demand in the presence of bankruptcy cost and corporate taxes. In this scenario, the e-tailer may need to secure short-term loans from a bank to place orders. With a Stackelberg game setting, we characterize the equilibrium interest rate, order quantity, and wholesale price. For both exogenous and endogenous wholesale prices, we show that the e-tailer's optimal order quantity decreases in the tax rate and increases in the bank's recovery rate (after e-tailer bankruptcy). However, the effect of internal capital on the e-tailer's order quantity and profit depends on both the tax and recovery rates. Specifically, when the tax rate or recovery rate is low, an etailer with more internal capital would order more and may earn a higher profit; this is not always the case when the tax rate or recovery rate is high. For the endogenous wholesale price case, we demonstrate that the e-tailer's order quantity and the upstream manufacturer's profit are both greater than those in the traditional newsvendor setting (with taxes), provided the tax rate is relatively high.