The Impact of Financial Market and Resale Market on Firm Strategies

The ever-increasing use of information technology (IT) in business transactions greatly expands firms’ exposure to different electronic markets. This paper provides a framework to understand how firms can leverage different strategies across external financial markets and an internal resale market to improve overall profitability. We develop a model in which a group of risk-averse retailers sell a homogeneous product to their respective uncertain consumer markets. We study a scenario where an internal resale market can be constructed among the retailers and outside financial markets can be used to improve their ability to manage uncertainty. We identify strategies for retailers operating in these two types of markets. We examine under what conditions which strategy is preferable and what range of economic impacts the two strategies may offer to enhance the retailer’s competitive advantages.