Tuesday, January 17th, 2023

Anna Ignatenko (NHH) preent “Countervailing Power of Firms in International Trade”.

Price variation across buyers within product categories is commonly explained by quality variation in international trade. Using uniquely detailed product descriptions, I control for quality and study market-power mechanisms of price variation across buyers. I develop a model of trade, in which buyers and sellers differ in productivity and can have market power to set prices. It predicts differential patterns of price variation with buyer productivity under oligopoly, oligopsony and bilateral bargaining in a standard international trade environment. Testing these predictions, I find that, in most markets, price variation is consistent with price discrimination by oligopolistic sellers charging lower mark-ups to more productive buyers. I identify the role of buyer’s outside options in this result separately from scale economies, transfer pricing and bargaining ability. These findings imply large productive firms benefit more from trade liberalization due to their ability to further reduce input prices by threatening to use alternative suppliers.