Competition and Inter-Firm Credit: Theory and Evidence from Firm-level Data in Indonesia
AbstractUsing firm-level data we investigate the relationship between trade credit and suppliers’ market structure and find an inverted U-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 InfoPaper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0702.
Date of creation: Jan 2007
Date of revision:
Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Web page: http://www.smu.edu/economics
Trade Credit; Competition; Development; Industrial Organization.;
Other versions of this item:
- Hyndman, Kyle & Serio, Giovanni, 2010. "Competition and inter-firm credit: Theory and evidence from firm-level data in Indonesia," Journal of Development Economics, Elsevier, vol. 93(1), pages 88-108, September.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-28 (All new papers)
- NEP-COM-2007-01-28 (Industrial Competition)
- NEP-DEV-2007-01-28 (Development)
- NEP-MIC-2007-01-28 (Microeconomics)
- NEP-SEA-2007-01-28 (South East Asia)
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