Market Power in Input Markets: Theory and Evidence from French Manufacturing [Job Market Paper]
This paper documents the market power of large buyers in foreign input markets, and evaluates its effect on the aggregate economy. I develop an empirical methodology to consistently estimate buyer power at the firm level, and apply it using longitudinal data on trade and production of French manufacturing firms from 1996-2007. My results show that the buyer power of large French importers is substantial, concentrated in key sectors, and it correlates with the size and productivity of the firm. I then incorporate heterogeneous buyer power in a general equilibrium model, and show that it induces large distortionary effects on the aggregate economy, worth about 3% of gross manufacturing output in France. In spite of such output distortions, total real income could potentially increase, due to transfers of rents from the foreign to the domestic economy. My analysis suggests that policies that spur import market integration can play a role in stimulating aggregate production.
International Prices and Cost Shocks: The Shock Matters (draft coming soon)
This paper investigates how export prices in different destination countries react to cost shocks that originate from two different sources: fluctuations in the exchange rate, and in tariffs. Using longitudinal export and production data for the universe of French manufacturing exporters, I provide new evidence that, conditional on the size of the shock, the year-to-year elasticity of free-on-board export prices to cost shocks is higher when the shock generates from exchange rate than tariff movements. In other words, the exchange-rate pass-through is larger than the tariff pass-through. This fact stands in contrast to traditional, static models of international pricing behavior, which predict symmetric pass-through of all cost shocks. I argue that a menu cost model of price adjustment, where firms have to pay a cost to change their prices, can rationalize the empirical evidence.
Work in Progress
A Sufficient Statistic Result for Estimating Firm-Level Pass-Through (with C. Arkolakis)