Investing in Power: Unequal Exchange in Global Value Chains

The question of how value is distributed within global value chains (GVCs) is one of the central questions in contemporary research on trade and development and an analysis of power is central to understanding this issue. This paper extends existing research on distribution within global value chains by focusing on the issue of power in both product markets and supplier markets. We present a formal model in which lead firms capture a larger share of value-added, either through higher mark-ups – monopoly power – or lower unit costs goods purchased from suppliers – monopsony power. Maintaining or expanding this market power involves costly investments in intangible assets, with the nature of that investment depending on the characteristics of the GVC. This framework provides new insights into the distributive dynamics of value chains, including reputation effects tied to corporate social responsibility. In this way, the paper presents an innovative way of theorizing international trade, inspired by the unequal exchange tradition, that can be extended in future research.