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Competition and inter-firm credit: Theory and evidence from firm-level data in Indonesia

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  • Hyndman, Kyle
  • Serio, Giovanni

Abstract

Using firm-level data we investigate the relationship between trade credit and suppliers' market structure and find a [intersection]-shaped relationship between competition and trade credit, with a discontinuous increase in credit provision between monopoly and duopoly. This "big jump" arises because monopolists are more likely to not offer any trade credit than firms in competitive environments. Our model exploits the fundamentally different nature between cash and trade credit sales, arguing that firms are unable to commit ex ante to a trade credit price. We show that monopolists will often sell only on cash, while credit is always provided in competitive environments.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 93 (2010)
Issue (Month): 1 (September)
Pages: 88-108

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Handle: RePEc:eee:deveco:v:93:y:2010:i:1:p:88-108

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Keywords: Trade credit Market structure Competition Indonesia;

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Cited by:
  1. Nakhoda, Aadil, 2012. "The influence of financial leverage of firms on their international trading activities," MPRA Paper 35765, University Library of Munich, Germany.
  2. Maho Shiraishi & Go Yano, 2010. "Trade credit in China in the early 1990s," Economic Change and Restructuring, Springer, vol. 43(3), pages 221-251, August.
  3. Watanabe, Mariko, 2011. "Competition of the mechanisms : how Chinese home appliance firms coped with default risk of trade credit?," IDE Discussion Papers 312, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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