We model the impact credit constraints and market risk have on the vertical relationships between rms in the supply chain. Firms which might face credit con- straints in future investments become endogenously risk averse when accumulating pledgable income. In the short run, the optimal supply contract therefore involves risk sharing, thereby inducing double marginalization. Credit constraints thus result in higher retail prices. The model o¤ers a concise explanation for several empirical reg...Expand abstract
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Vertical Relations Under Credit Constraints.
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