Financial contract invisibility in a competing supply chain

To address the discrepancy between the prevalent practise of financial contract invisibility and the assumption of visibility in previous literature, we explore the impact of financial contract invisibility on firm performance. By deriving and comparing the equilibrium outcomes under both visible and invisible financial contracts, we examine how financial contract invisibility interacts with bankruptcy risks faced by the capital-constrained retailers, as well as how this interaction affects the strategic decisions and profits of firms. Results show that when both retailers are in financial distress, the manufacturer adopts a discriminatory wholesale pricing strategy to identical retailers when the demand uncertainty is medium. Furthermore, when the competition intensity is low, financial contract invisibility increases the manufacturer's inclination to employ this pricing strategy. Meanwhile, this invisibility reduces the bankruptcy risks for the retailers who face financial distress when the competition intensity is high, but increases such risks when the competition intensity is low. Our analysis further reveals that the manufacturer always achieves higher profits under visible financial contracts than under invisible ones. Additionally, we observe an intriguing finding that one retailer and the overall supply chain may also obtain higher profits under visible financial contracts, depending on the competition intensity and demand uncertainty.