Consumer Surplus from Suppliers: How Big is it and Does it Matter for Growth?

70 Pages Posted: 15 May 2023 Last revised: 4 Dec 2024

See all articles by David Baqaee

David Baqaee

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Cédric Duprez

National Bank of Belgium

Emmanuel Farhi

Harvard University

Date Written: May 2023

Abstract

Consumer surplus, the area between the demand curve and the price, plays a key role in many models of trade and growth. Quantifying it typically requires estimating and extrapolating demand curves. This paper provides an alternative approach to measuring consumer surplus by focusing on firms as consumers of inputs. We show that the elasticity of a downstream firm’s marginal cost to supplier additions and separations measures the downstream firm’s consumer surplus relative to its input costs. Using Belgian data and instrumenting for changes in supplier access, we find that for every 1% of suppliers gained or lost, the marginal cost of downstream firms falls or rises by roughly 0.3%. Our estimates are directly informative about the strength of love-of-variety effects and the gains from movements along quality-ladders. We use our microeconomic estimates of consumer surplus to assess the macroeconomic importance of supplier additions and separations in a growth-accounting framework. We find that supplier churn plausibly accounts for about half of aggregate productivity growth.

Suggested Citation

Baqaee, David and Burstein, Ariel T. and Duprez, Cédric and Farhi, Emmanuel, Consumer Surplus from Suppliers: How Big is it and Does it Matter for Growth? (May 2023). NBER Working Paper No. w31231, Available at SSRN: https://ssrn.com/abstract=4448282

David Baqaee (Contact Author)

University of California, Los Angeles (UCLA) ( email )

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Los Angeles, CA 90095
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics ( email )

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Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

Cédric Duprez

National Bank of Belgium ( email )

Brussels, B-1000
Belgium

Emmanuel Farhi

Harvard University

1875 Cambridge Street
Cambridge, MA 02138
United States

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