Imperfect Competition in Firm-to-Firm Trade

89 Pages Posted: 5 Jun 2019 Last revised: 2 Dec 2019

See all articles by Ayumu Ken Kikkawa

Ayumu Ken Kikkawa

University of British Columbia (UBC) - Sauder School of Business

Glenn Magerman

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB)

Emmanuel Dhyne

National Bank of Belgium

Date Written: May 9, 2019

Abstract

This paper studies the implications of imperfect competition in firm-to-firm trade. Exploiting data on the universe of sales relationships between Belgian firms, we document that firms’ markups increase in the average input shares among their buyers. Given this fact, we develop a model where firms charge supplier-buyer specific markups, which depend on the bilateral input shares. The estimated model suggests large distortions due to double marginalization: Reducing all markups in firm-to-firm trade by 20 percent increases welfare by 10 percent. We also highlight the importance of accounting for endogeneities in bilateral markups in predicting the effects of shock transmissions.

Keywords: Firm-To-Firm Markups, Domestic Production Networks, Double Marginalization

JEL Classification: F12, L13

Suggested Citation

Kikkawa, Ayumu Ken and Magerman, Glenn and Dhyne, Emmanuel, Imperfect Competition in Firm-to-Firm Trade (May 9, 2019). Available at SSRN: https://ssrn.com/abstract=3389836 or http://dx.doi.org/10.2139/ssrn.3389836

Ayumu Ken Kikkawa (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Glenn Magerman

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

Université Libre de Bruxelles (ULB)

CP 132 Av FD Roosevelt 50
Brussels, Brussels 1050
Belgium

Emmanuel Dhyne

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

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