Cheap Trade Credit and Competition in Downstream Markets

Mariassunta Giannetti, Nicolas Serrano-Velarde and Emanuele Tarantino

Journal of Political Economy, 2021, vol. 129, issue 6, 1744 - 1796

Abstract: We conjecture that suppliers offer trade credit to ease competition in downstream markets. We show theoretically that suppliers that have to transfer surplus to high-bargaining-power customers would want to offer an increasing price schedule to preserve sales to other buyers. Suppliers can implement this using trade credit. Empirically, we find that suppliers grant trade credit to high-bargaining-power customers when they fear the cannibalization of sales to other customers. Exploiting a law that lowered the cost of offering trade credit, we show that higher provision of trade credit to high-bargaining-power customers leads to an expansion of the suppliers’ customer base.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://dx.doi.org/10.1086/713731 (application/pdf)
http://dx.doi.org/10.1086/713731 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Cheap Trade Credit and Competition in Downstream Markets (2018)
Working Paper: Cheap Trade Credit and Competition in Downstream Markets (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:doi:10.1086/713731

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().