VGSF - WU Vienna - LC

Mariassunta Giannetti, Stockholm School of Economics

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Mari­as­sunta Gi­an­netti from the Stock­holm School of Eco­nom­ics to present her re­search pa­per.
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Cheap Trade Credit and Com­pet­i­tion in Down­stream Mar­kets

Us­ing a unique data­set with in­form­a­tion on 20 mil­lion in­ter­-firm trans­ac­tions, we provide evid­ence that sup­pli­ers of­fer cheap 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 by choos­ing a trade credit limit up to which cus­tomers can pur­chase on ac­count. This con­trac­tual fea­ture al­lows sup­pli­ers to main­tain high-bar­gain­ing-­power cus­tomers' mar­ginal costs high and lim­its com­pet­i­tion in the down­stream mar­ket. Em­pir­ic­ally, we find that sup­pli­ers grant trade credit to high-bar­gain­ing-­power cus­tomers only when they fear the can­ni­bal­iz­a­tion of sales to other low-bar­gain­ing-­power 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 and higher growth of sales to low-bar­gain­ing-­power cus­tomers.

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