In the platform economy, retail platforms generate demand via traffic investment, often transferring financial pressure to capital-constrained manufacturers. This study aims to jointly examine the capital-constrained manufacturer's financing strategy selection (debt vs. hybrid debt-equity) and the retail platform's endogenous traffic investment decisions.
We develop a two-echelon supply chain model consisting of a capital-constrained manufacturer as the leader and his follower, a capital-rich retail platform, comparing pure credit financing from a bank or retail platform (bank credit financing and RCF) and hybrid debt-equity financing (HF-BE and HF-RE). We examine the platform-led setting and assess robustness with a nonlinear demand function.
The manufacturer's preference for platform financing is non-monotonic; he may revert to the bank's participation even when the rate is excessively high. Without financing participation, the platform wishes the manufacturer to introduce equity financing; with participation, it depends on the ratio because its profit follows an inverted U-shape with equity like the manufacturer. Equity financing induces a counterintuitive market expansion dominated by the low-price effect. Products with heterogeneity in terms of cost and traffic dependency have different applicable strategies for traffic investment and financing.
This study integrates financing strategies with endogenous demand creation (traffic investment) into a unified game framework. It reveals how equity dilution interacts with traffic investment to reshape financing preference, pricing and market scale, offering new insights into financing beyond interest-rate comparison.
