Is Information Transparency a Blessing or A Curse Under Trade Credit in Competing Supply Chains?

Numerous information sharing practices are implemented to mitigate information asymmetry between retailers and manufacturers. However, it remains unclear how information transparency affects supply chain participants in the presence of trade credit in competing supply chains. To address this problem, our paper investigates the effects of information transparency on retailers’ bankruptcy risk and firms’ performance under trade credit. We construct two competing supply chains consisting of two manufacturers and two retailers. The manufacturers have sufficient capital and provide trade credit to the financially distressed retailers. The retailers possess private demand signal information, which may be observed by the manufacturers depending on the information regime. By comparing the bankruptcy ranges and expected profits across these two regimes, we obtain several main results. First, information transparency always contracts the full bankruptcy range, while it unexpectedly expands the full solvency range when the signal accuracy is low. Second, as conventional thoughts indicate, in the absence of trade credit, information transparency benefits the manufacturers and harms the retailers. However, our study shows that, under trade credit, information transparency may harm the manufacturers and benefit the retailers, depending on demand uncertainty and signal accuracy. Moreover, information transparency can generate both “Win-Win” and “Lose-Lose” outcomes for the manufacturers and the retailers. Finally, regardless of the information regime, trade credit always benefits the manufacturers but harms the retailers.