Interacting and Sharing the Gains in Buyer-Seller Relationships: Garments in Bangladesh

Friday, 21 October, 2016
Abstract: 
An integral part of global supply chains is the selection by international buyers of trading partners in developing countries. However, our understanding of how buyers find a suitable long term supplier is limited. I use unique buyer-seller customs data in a large market in an LDC - the “fast fashion” industry in Bangladesh - to study the formation of those relationships. I show that buyers experiment with different potential partners before settling down in their relationships. Contrary to the standard result in search models, I show that the more heterogeneous the potential partners are, the less the buyers experiment before choosing a trade partner. This mechanism affects not only who trades with whom but also how the gains from trade are split between international buyers and their suppliers in Low Income Countries.