Platform Financing vs. Trade Credit for Lending to Third-Party Sellers.

This article examines platform financing—loans provided by e-commerce platforms to third-party sellers—in comparison with traditional trade credit from suppliers, focusing on scenarios with exogenous (external) and endogenous (decision-influenced) default risks. Under exogenous default risk, platform financing can subsidize sellers by offering lower interest rates and isolating suppliers from default risk, thereby increasing sales commissions and benefiting all parties, especially in small markets, high product costs, or high commission rate settings. In the endogenous default risk scenario, platform financing helps mitigate sellers’ opportunistic overordering and dampens suppliers’ strategic price hikes, preventing or reducing defaults and improving supply chain performance, though the effects of product cost and market uncertainty on equilibrium outcomes are more complex. The study also explores the roles of sellers’ initial capital—which generally expands the conditions favoring platform financing—and credit limits, finding that imposing credit limits is suboptimal in price-elastic demand environments. These findings provide nuanced insights into when and how platform financing can outperform trade credit, offering guidance for e-commerce platforms and third-party sellers in optimizing financing strategies.