Reciprocal Trading

Posted in Marketing and Strategy Terms, Total Reads: 417

Definition: Reciprocal Trading

Reciprocal trading is when a buyer and seller have an interchangeable relation. That is, the buyer for one transaction becomes the seller with another transaction with the same counterpart.

The buyer and seller involved here can be of any order- two small scale shops, two firms or even two nationals. Such a trading can happen when each party has something of value to offer to the other.

Such relationships are precarious and generally end up being favourable as each party has something they value with the other. And hence these trading end up being optimal. In the sense that, if one party is not satisfied with the buying agreement he has and feels over charged or not happy with the service and the relationship becomes strained, it will affect the seller even more than usual as he also needs to buy from the first party. Because of the strained relation it may affect the quality of products and services he gets. For example, if the party 1 charges high for a product being sold to party 2, party 2 will in turn charge high for the product he is selling to party 1. To avoid this conflict generally reciprocal trading relations are optimal.

This relation becomes skewed, when one party depends much more than the other. For example, if party 1 has a lot of sellers to choose from, but party 2 has only party 1 to buy from, then party 1 has a huge leverage on party 2 and the relationship will be in the favour of party 1.



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