Since our paper is focused on the budget-constrained retailer in
a newsvendor model, there are several threads of related literature.
In the economics literature, researchers show that the buyer’s budget
constraints may influence the optimal mechanism of supply/
procurement contracts. For instance, Levaggi (1999) develops a
principal-agent model in which the principal (buyer) faces a binding
budget constraint, and argues that the budget constraint does
not ensure the principal is always better off by using an incentive
compatible contract. Hence, the likely outcome is either a pooling
or bargaining solution. Che and Gale (2000) argue that a buyer’s
budget constraint may make it optimal for the seller to use nonlinear
pricing, commit to a declining price sequence, require that the
buyer disclose its budget, or offer financing. Thomas (2002) studies
the non-linear pricing problem when a budget constraint limits the
magnitude of monetary transfer