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Trade Credit and Product Pricing: The Role of Implicit Interest Rates

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  • Niklas Amberg
  • Tor Jacobson
  • Erik von Schedvin

Abstract

We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive panel data set on product-level transaction prices and firm characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, in response to higher opportunity costs of liquidity and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial conditions affect prices.

Suggested Citation

  • Niklas Amberg & Tor Jacobson & Erik von Schedvin, 2021. "Trade Credit and Product Pricing: The Role of Implicit Interest Rates," Journal of the European Economic Association, European Economic Association, vol. 19(2), pages 709-740.
    • Handle: RePEc:oup:jeurec:v:19:y:2021:i:2:p:709-740.
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    File URL: http://hdl.handle.net/10.1093/jeea/jvaa007
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    Cited by:

    1. Gaurav Nagpal & Udayan Chanda & Himanshu Seth & Namita Ruparel, 2022. "Inventory Replenishment Policies for Two Successive Generations of Technology Products Under Permissible Delay in Payments," International Journal of Information Systems and Supply Chain Management (IJISSCM), IGI Global, vol. 15(1), pages 1-29, January.

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