Vertical relations under credit constraints


Nocke, Volker ; Thanassoulis, John



URL: https://ideas.repec.org/p/cpr/ceprdp/7636.html
Additional URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
Document Type: Working paper
Year of publication: 2010
The title of a journal, publication series: CEPR Discussion Paper
Volume: 7636
Place of publication: London
Publishing house: Centre for Economic Policy Research (CEPR)
Publication language: English
Institution: School of Law and Economics > VWL, Mikroökonomik (Nocke)
Subject: 330 Economics
Abstract: We model the impact credit constraints and market risk have on the vertical relationships between firms in the supply chain. Firms which might face credit constraints in future investments become endogenously risk averse when accumulating pledgable income. In the short run, the optimal supply contract therefore involves risk sharing, thereby inducing double marginalization. Credit constraints thus result in higher retail prices. The model offers a concise explanation for several empirical regularities of firm behavior. We demonstrate an intrinsic complementarity between supply and lending providing a theory of finance arms of major suppliers; a monetary transmission mechanism linking the cost of borrowing with short-run retail prices that can help explain the price puzzle in macroeconomics; a theory of countervailing power based on credit constraints; and a motive for outsourcing supply (or distribution) in the face of market risk.

Dieser Eintrag ist Teil der Universitätsbibliographie.




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Nocke, Volker ORCID: 0000-0002-5000-6828 ; Thanassoulis, John (2010) Vertical relations under credit constraints. CEPR Discussion Paper London 7636 [Working paper]


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ORCID: Nocke, Volker ORCID: 0000-0002-5000-6828 ; Thanassoulis, John

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