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

Friday, 21 October, 2016
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.