Seminar – Cheap Trade Credit & Competition in Downstream Markets

Dr Emanuele Tarantino, University of Mannheim

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.

The research shows that empirically trade credit is not monotonically increasing in past purchases, as is consistent with the conjecture that it targets infra-marginal units. In addition, the supplier grants trade credit to high bargaining-power-customers only when it fears the cannibalisation of sales to other low-bargaining-power clients.

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

Speaker bio

Emanuele Tarantino is an Assistant Professor in Economics at the University of Mannheim, Germany, a research affiliate of the Centre for Economic Policy Research (CEPR), and a member of the Economic Advisory Group on Competition Policy of the European Commission Chief Economist. He holds a PhD in Economics from the European University Institute (Florence) and, before joining the University of Mannheim, he was a “Franco Modigliani” Research Fellow at the University of Bologna. His research interests are in industrial and financial economics, with a particular focus on innovation, vertical relationships, and financial contracting. His papers have been published in leading journals in economics and finance, like, the Journal of Financial Economics, the Review of Financial Studies, and the RAND Journal of Economics.

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