Cheap trade credit and competition in downstream markets

Giannetti, Mariassunta ; Serrano-Velarde, Nicolas ; Tarantino, Emanuele

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Document Type: Working paper
Year of publication: 2017
The title of a journal, publication series: Swedish House of Finance research paper
Volume: 17-20
Place of publication: Stockholm
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Juniorprofessur) (Tarantino 2014-2019)
Subject: 330 Economics
Classification: JEL: G3 , D2 , L1,
Keywords (English): Trade credit , competition , input prices , supply chains
Abstract: Using a unique matched dataset of customers and suppliers, we provide evidence that suppliers offer trade credit to high-bargaining-power customers to ease competition in downstream markets in which they have a large number of other customers. Differently from price discounts, trade credit can target infra-marginal units and does not lower the marginal cost of the high-bargaining-power customers. In equilibrium, the latter do not steal market share from the competitors and the supplier can preserve profitable sales to low-bargaining-power customers. We show that empirically trade credit is not monotonically increasing in past purchases, as is consistent with our conjecture that it targets infra-marginal units. Our results are not driven by differences in suppliers' ability to provide trade credit, customer-specific shocks or endogenous location decisions.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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