Abstract: Financing strategies for a dual channel supply chain that faces stochastic demands and loss-averse and financially constrained retailers are studied. By using the Stackelberg game theory, we establish a trade credit model and a bank credit model and then analyze supply chain members' optimal operational decisions under the two financing models. Our numerical analysis reveals the impact of retailers' loss aversion coefficient and initial capital on their decisions. The results show that retailers' optimal order quantity decreases in line with their loss aversion coefficient, and the decline rate of optimal order quantity under bank credit is larger than that under trade credit. When the loss aversion coefficient is relatively large, retailers and manufacturers prefer bank credit. Otherwise, both sides prefer trade credit. When initial capital is relatively large, retailers and manufacturers prefer bank credit. Otherwise, manufacturers prefer trade credit and retailers prefer bank credit. In this case, manufacturers could achieve Pareto improvement of the dual-channel supply chain by limiting the wholesale price to a certain range. In addition, when consumers prefer retail channel, bank credit is an equilibrium financing strategy for a dual-channel supply chain. When demand fluctuation is small, trade credit is an equilibrium financing strategy for both parties.

Key words: dual-channel supply chain, loss-aversion, capital constraint, trade credit, bank credit