Over the past decades, a rise in market concentration and a boom in outsourcing have made large buyers the dominant players in international markets, raising competitive concerns. In this paper, I document the market power of large buyers in foreign input markets, and evaluate 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 of production, and show that it induces large distortionary effects on the aggregate economy, worth about 3% of gross manufacturing output in France. My results suggest that market imperfections are large in international trade, and that models that rely on the assumption of perfectly competitive input markets could overestimate the welfare effect of foreign intermediate inputs on welfare.
Work in Progress
International Prices and Cost Shocks: The Shock Matters
A Sufficient Statistic Result for Estimating Firm-Level Pass-Through (with C. Arkolakis)