Export Credit as a Mechanism for Price Discrimination

James Vercammen

Canadian Journal of Economics, 1998, vol. 31, issue 2, 279-294

Abstract: Export credit is shown to be a mechanism that facilitates price discrimination. The scenario considered is one of competitive exporters' selling to a cash importer with a relatively inelastic demand schedule and a credit importer with a relatively elastic demand schedule. The spot markets of the two importing countries is assumed to be perfectly and costlessly arbitraged. In the absence of export credit, price discrimination is not possible, even with government intervention. If export credit is used but the government does not intervene, price discrimination is also not possible. Export credit used in conjunction with targeted export price subsidies or loan guarantees generate rents from price discrimination, despite the perfect arbitrage constraint.

Date: 1998
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