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  5. Oligopoly in International Trade
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Oligopoly in International Trade

Paper Session

Sunday, Jan. 5, 2025 1:00 PM - 3:00 PM (PST)

Hilton San Francisco Union Square, Golden Gate 4
Hosted By: American Economic Association
  • Chair: Pol Antràs, Harvard University

How Wide is the Market Border? Perspectives from Global Value Chains

Vanessa Alviarez
,
Inter-American Development Bank
Michele Fioretti
,
Sciences Po
Ken Kikkawa
,
University of British Columbia
Monica Morlacco
,
University of Southern California

Abstract

We use detailed firm-to-firm data for U.S. imports to examine how bilateral prices
respond to exogenous price changes of other firm pairs. These cross-price elasticities help
delineate market boundaries. In a model of bilateral price bargaining with switching costs, we
posit that, if firms can switch suppliers costlessly, cross-price elasticities are independent of
whether firms share the same buyer. In such instances, market boundaries align with product
definitions. However, when switching costs are prohibitively high, positive cross-price elasticities
occur only among firms that share the same buyer, leading to a market definition significantly
narrower than the product boundary. We calculate these cross-price elasticities across various
industries and examine the broader implications of differing market definitions."

Import Firm Concentration and Tariff Incidence Across Countries

Rodrigo Adao
,
University of Chicago
Ana Margarida Fernandes
,
World Bank
Chang-Tai Hsieh
,
University of Chicago
Daria Taglioni
,
World Bank

Abstract

How does the market structure among importer firms affect the aggregate and distributional effects of changes in trade costs? We combine a model of domestic pricing decisions of importer firms with administrative firm-level import records from 55 countries to answer this question. We show that imports of a good are highly concentrated among the largest importer firms, with this concentration being more pronounced in smaller and lower income countries. We develop a model in which import firm concentration determines domestic pricing strategies and, consequently, the incidence of tariffs on consumer prices and firm markups. The role of import concentration is captured through the firm-level elasticity of imports to tariff changes, which depends solely on the firm’s initial share of the country’s imports of a good. We estimate that the negative impact of tariff increases on firm imports is monotonically decreasing with the firm's good import share. The combination of our model and estimates implies that, due to higher import concentration, poorer and smaller countries have higher markups on imported goods and a greater incidence of trade cost changes on firm profits than on consumer prices.

Trade Wars and the Reallocation of Market Power in Global Export Markets

Chuan-Han Cheng
,
University of Cambridge
Giancarlo Corsetti
,
European University Institute
Meredith Crowley
,
University of Cambridge
Lu Han
,
Bank of Canada

Abstract

By diverting and distorting bilateral trade flows, trade wars shift export patterns and market concentration around the globe. In this paper, we estimate parameters in n-country general equilibrium trade model featuring oligopolistic competition with data from a rich panel of firm-level exports from 11 low and middle-income countries to 165 destinations that report bilateral and multilateral tariffs to the World Trade Organization. Our analysis emphasizes the importance of firm entry into and exit from relatively concentrated product markets at the level of origin-destination country pairs. The impact of a trade war on welfare and prices is dominated by the entry, exit, and pricing decisions by a few large, productive firms. These decisions have first-order effects on the reallocation of market power among firms within and across borders.

Reciprocal Dumping or Pro-Competitive Effects from Trade? Trade and Welfare under Oligopolistic Competition

Pol Antràs
,
Harvard University
Eduardo Morales
,
Princeton University
Daniel Ramos
,
John Hopkins University

Abstract

We study the welfare consequences of reductions in trade costs in a general equilibrium model with symmetric firms and oligopolistic competition. We build on the nested CES model with a continuum of sectors in Atkeson and Burstein (2008), and derive formulas for the welfare consequences of a symmetric reduction in trade costs under different modes of competition (including Cournot and Bertrand competition). The framework collapses to a standard monopolistic competition model with symmetric firms – with an associated Arkolakis et al. (2012) welfare formula – when firms are of negligible size or when the within- and across-sector demand elasticities coincide. When the the within-sectoral substitution elasticity goes to infinity, our framework instead converges to a general equilibrium version of the Brander and Krugman (1983) ‘reciprocal dumping’ framework with homogeneous goods. We show that, starting from autarky, symmetric decreases in trade costs may reduce welfare, but only when the within-sectoral elasticity of substitution is high relative to both the cross-sectoral elasticity of substitution and the number of firms. In those cases, welfare is a U-shaped function of trade costs. When the degree of product differentiation within sectors is high enough or when the number of firms is large, welfare is instead monotonically decreasing in trade costs. We explore extensions of the model featuring heterogeneous firms and asymmetric countries.

Discussant(s)
Fabian Trottner
,
University of California-San Diego
Monica Morlacco
,
University of Southern California
Kirill Borusyak
,
University of California-Berkeley
Agustín Gutiérrez
,
University of Wisconsin-Madison
JEL Classifications
  • F1 - Trade