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Oligopsony Distortions and Welfare Implications of Trade

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  • Devadoss, Stephen
  • Song, Wongun

Abstract

While imperfect competition in the output market has garnered extensive focus in the new trade theory literature, input market imperfection has received considerably less attention. Since market power in input purchase has been growing in recent years, it is worth examining the welfare implications of trade arising from oligopsony power. We develop a model consisting of two final goods, one intermediate good, and two primary factors (capital and labor). One final good and the intermediate good employ primary factors, whereas the other final good uses labor and the intermediate input. All markets operate under perfect competition except for the intermediate input, which is oligopsonistic. Using this model, we show that oligopsony can lead to some anomalies such as an increase in the oligopsony output, reward to the intensive-factor in the oligopsony sector, national welfare, and deterioration of terms of trade, but it always decreases the reward to the intermediate input.

Suggested Citation

  • Devadoss, Stephen & Song, Wongun, 2006. "Oligopsony Distortions and Welfare Implications of Trade," 2006 Annual meeting, July 23-26, Long Beach, CA 21043, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea06:21043
    DOI: 10.22004/ag.econ.21043
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    Cited by:

    1. Swati Dhingra, 2016. "Piggy-Back Exporting, Intermediation, and the Distributional Gains from Trade in Agricultural Markets," 2016 Meeting Papers 712, Society for Economic Dynamics.
    2. Dhingra, Swati & Tenreyro, Silvana, 2020. "The Rise of Agribusiness and the Distributional Consequences of Policies on Intermediated Trade," CEPR Discussion Papers 14384, C.E.P.R. Discussion Papers.
    3. Dhingra, Swati & Tenreyro, Silvana, 2021. "The Rise of Agribusinesses and its Distributional Consequences," CEPR Discussion Papers 15942, C.E.P.R. Discussion Papers.
    4. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.

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    Keywords

    Marketing;

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