I employ longitudinal data on trade and production of French manufacturing firms from 1996-2007, and provide evidence that in a large number of sectors, larger and more productive firms spend significantly lower-than-optimal amount of resources on foreign intermediate inputs, consistent with the exercise of buyer power in international markets. Based on the empirical evidence, I incorporate oligopsony power in an heterogeneous firm model of production, and analytically show that it induces large distortionary effects on the economy. When buyer power of French manufacturing importers is counterfactually removed, I calculate gains in aggregate TFP of 0.1–0.9%, and gains in aggregate output of 0.5–1.5%.
We analyze the properties of a number of demand functions that have been used in international macroeconomic and trade models as alternatives to CES. These demand functions generate variable markups by means of variable elasticity of demand, and yield closed-form relationships between markups and prices. We exploit the tractability of the demand systems to discuss the pass-through of cost-shocks into prices and the distribution of markups and pass-through in the economy.
Work in Progress
A Sufficient Statistic Result for Estimating Firm-Level Pass-Through (with C. Arkolakis)