Abstract: Overconfident newsvendors perceive the expected outcome of an uncertain event as more certain than actuality.Built upon the classic newsvendor model, a system with a profit-maximizing bank and an overconfident retailer is studied, where the retailer is capital-constrained and might borrow bank loans. Based on retailers’ initial capital, we clarify them as severely poor, medium poor and rich, respectively. We obtain the equilibrium order quantity and bank interest rate under the information symmetry and asymmetry. Under the information symmetry, when the retailer is severely poor or medium poor, he always accesses bank loans. Under the information asymmetry, when the retailer is severely poor, he borrows from the bank. However, when the retailer is medium poor, he uses up all his initial capital without borrowing bank loans. The retailer with limited funds is willing to disclose his cognition of the market demand to the bank. The information asymmetry might reduce the loss of the system’s profit, which is caused by double marginalization effect.

Key words: Stackelberg game, bank financing, overconfident newsvendor, information asymmetry