Industry Structure and the Strategic Provision of Trade Credit by Upstream Firms

Abstract

Trade credit can serve as a collusion mechanism for competing supply chains to increase producer surplus in medium concentrated industries. We analyze theoretically how this form of financing influences retailers’ behavior in the product market, study incentives to deviate, and show evidence consistent with the model’s predictions. Trade credit use is inversely U shaped in industry concentration, and this pattern is more pronounced in industries more prone to collusion and when incentives to deviate are smaller.

Implicit Benefits and Financing

“…First, despite the development of banks and markets, alternative financing remains strong in many economies, and family lending has been increasingly important in entrepreneurial finance in Britain and the United States (e.g., Basu, 1998;Dunn and Holtz-Eakin, 2000). Second, some types of alternative financing, such as trade credits, are employed more by large or monopoly firms than small firms, despite the former having better access to bank loans (e.g., Lehar et al, 2020). Moreover, controlling for selection, firms that use alternative financing can perform better than those that use bank loans (e.g., Allen et al, 2019) with similar financing costs.…”

Supply Chain Power and Corporate Environmental Responsibility: Mediation Effects Based on Business Performance

“…In addition, incentives for corporate social responsibility investments can be provided through the supply chain structure. Lehar, Song, Yuan et al (2020) stated that the supply chain structure that best incentivises corporate social responsibility investments depends on the interactions among vertical coordination of corporate social responsibility, free-riding, and offsetting capabilities [13].…”