Trade credit contracts: Design and regulation

Florina Silaghi, Franck Moraux

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)
2 Downloads (Pure)

Abstract

This paper provides a theoretical analysis of trade credit within a real options framework. We show that under trade credit the buyer delays the decision to stop production, getting closer to the supply chain optimal stopping decision. Therefore, trade credit may serve as a coordination device. The supplier can optimally choose to offer trade credit for free, since this will guarantee her business for a longer period of time. Optimal trade credit design is analyzed for an integrated supply chain (cooperative solution) and for external procurement (Nash bargaining and Stackelberg solutions). When regulation imposes a limit on trade credit maturity, the wholesale price is reduced, trade credit decreases and internal procurement increases. The model’s predictions are in line with recent empirical evidence on the effects of regulation in the retail industry.
Original languageEnglish
Pages (from-to)980-992
JournalEuropean journal of operational research
DOIs
Publication statusPublished - Feb 2022

Fingerprint

Dive into the research topics of 'Trade credit contracts: Design and regulation'. Together they form a unique fingerprint.

Cite this