An evolutionary game theory approach for analyzing risk-based financing schemes

Abstract

To achieve a competitive advantage, corporations are growingly adopting strategies to effectively promote their market demand. Trade credit payment and pricing strategies provided by corporates can efficiently influence customers’ purchasing behavior. Although granting a trade credit strategy can increase corporations’ market share, such a strategy is a risk-based financing program for corporations. Therefore, corporates should choose whether to use trade credit financing in their long-term. This paper proposes an analytical model to investigate the evolutionary behaviors of retailers regarding pricing and trade credit strategies in the long term. In the study under investigation, retailers can use two financing strategies: risk-based trade credit and non-trade credit (i.e., pricing). This study provides both numerical and analytical findings. Our findings demonstrate that the risk-based trade credit strategy is the stationary financing solution for retailers in the long term. The result indicates that when customers are financially constrained, providing a trade credit scheme to customers is a successful marketing policy in both short-term and long-term frameworks. © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023.