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Two-Sided Market Power in Firm-to-Firm Trade

Vanessa Alviarez, Michele Fioretti, Ken Kikkawa and Monica Morlacco

No 12798, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporters and importers bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60 percent.

Keywords: Market power; global value chains; Pass-through; International trade (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 F62 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-agr, nep-cis, nep-ene, nep-env and nep-res
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Citations: View citations in EconPapers (6)

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Working Paper: Two-Sided Market Power in Firm-to-Firm Trade (2023) Downloads
Working Paper: Two-Sided Market Power in Firm-to-Firm Trade (2022) Downloads
Working Paper: Two-Sided Market Power in Firm-to-Firm Trade (2022) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:12798

DOI: 10.18235/0004746

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