Our understanding of how buyers find a suitable long term supplier is limited. The author uses unique buyer-seller customs data in a large market in the “fast fashion” industry in Bangladesh to study the formation of those relationships. The author shows that buyers experiment with different potential partners before settling down in their relationships. Contrary to the standard result in search models, the author shows 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.
This research was funded under the Private Enterprise Development in Low-Income Countries (PEDL) programme.
Cajal-Grossi, J. (2016), Interacting and Sharing the Gains in Buyer-Seller Relationships: Garments in Bangladesh, PEDL