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

Author

Listed:
  • Vanessa I. Alviarez
  • Michele Fioretti
  • Ken Kikkawa
  • Monica Morlacco

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 exporter's and importer's 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%.

Suggested Citation

  • Vanessa I. Alviarez & Michele Fioretti & Ken Kikkawa & Monica Morlacco, 2023. "Two-Sided Market Power in Firm-to-Firm Trade," NBER Working Papers 31253, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31253
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    Cited by:

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    2. Kossi Messanh Agbekponou & Ilaria Fusacchia, 2023. "Global value chains' position and value capture: Firm evidence in agri-food industry," Post-Print hal-04321670, HAL.
    3. Toraubally, Waseem A., 2023. "Comparative advantage with many goods: New treatment and results," European Journal of Operational Research, Elsevier, vol. 311(3), pages 1188-1201.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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