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

Michele Fioretti (1) , Vanessa Alvariez (2) , Ayumu Ken Kikkawa (3) , Monica Morlacco (4)

1 ECON - Département d'économie (Sciences Po)
2 IDB - Inter-American Development Bank
3 UBC - University of British Columbia
4 USC - University of Southern California

Global value chains (GVCs) typically involve large firms exerting bargaining power over the terms of trade. We develop a novel theory of international prices accounting for these features of GVCs and illustrate their e↵ect on the pass-through of trade shocks into import prices. We build a new dataset merging transaction-level U.S. import data with balance sheet data for both importers and exporters to evaluate the model's performance. Our estimated model generates more accurate predictions of pair-level price changes following trade shocks than standard models, improving the estimated impact of the 2018 trade war on aggregate U.S. import prices by 40-60%.

Domaines: Economies et finances

Michele Fioretti, Vanessa Alvariez, Ayumu Ken Kikkawa, Monica Morlacco. Two-Sided Market Power in Firm-to-Firm Trade. 2022. ⟨hal-03795736v1⟩