Erasmus Finance Seminars

Mariassunta Giannetti (Stockholm School of Economics, Sweden)
Tuesday, 28 November 2017


Using an 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 numbers 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 pro table 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 other endogenous location decisions.