Working Paper: CEPR ID: DP13228
Authors: Mariassunta Giannetti; Nicolas Serranovelarde; Emanuele Tarantino
Abstract: 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.
Keywords: trade credit; competition; input prices; supply chains
JEL Codes: G3; D2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade credit (F19) | market share of high-bargaining-power customers (D42) |
| supplier's provision of trade credit (L14) | fear of cannibalization of sales to low-bargaining-power customers (D49) |
| trade credit (F19) | competition in downstream markets (L13) |
| bargaining power (C79) | trade credit provision (F10) |