Relationships on the Rocks: Contract Evolution in a Market for Ice

Tarek Ghani and Tristan Reed

American Economic Journal: Microeconomics, 2022, vol. 14, issue 1, 330-65

Abstract: Firms use relational contracts to support repeated trade. Do these informal agreements evolve in response to market conditions? In a market for ice, firms reestablish relationships on new terms when a prior agreement breaks down. Using transaction data, we show that ice retailers prioritize deliveries to loyal buyers⁠—fishing firms⁠—when supply from the monopolistic manufacturer is scarce. After an upstream shock to competition increases supply, repeated trade lapses, threatening retailers' positions. Incumbent retailers establish a new agreement expanding trade credit to loyal buyers, which impedes new retailer entry. Upstream competition also increases downstream firms' productivity and lowers consumer fish prices.

JEL-codes: D24 D86 L12 L14 L81 O14 Q22 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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DOI: 10.1257/mic.20190166

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