University of Cambridge > Talks.cam > Economics & Policy Seminars, CJBS > CHEAP TRADE CREDIT AND COMPETITION IN DOWNSTREAM MARKETS

CHEAP TRADE CREDIT AND COMPETITION IN DOWNSTREAM MARKETS

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Ahead of the seminar there will be a light lunch served in the Conference Reception at 12:30

Using a unique dataset with information on 20 million inter-firm transactions, 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 clients.

Differently from price discounts, trade credit targets infra-marginal units and does not lower the marginal cost of high-bargaining-power customers. As a consequence, the latter do not gain market share 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. In addition, the supplier grants trade credit to high bargaining-power-customers only when it fears the cannibalization of sales to other low-bargaining-power clients.

Our results are not driven by differences in suppliers’ ability to provide trade credit, customer-specific shocks, or endogenous location decisions.

This talk is part of the Economics & Policy Seminars, CJBS series.

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