Working Paper: NBER ID: w31253
Authors: Vanessa I. Alviarez; Michele Fioretti; Ken Kikkawa; Monica Morlacco
Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60%.
Keywords: two-sided market power; firm-to-firm trade; tariff passthrough; bargaining power; import prices
JEL Codes: F12; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| U.S. importers' bargaining power (F14) | foreign counterparts' bargaining power (F23) |
| bargaining power disparity (C79) | tariff passthrough (H22) |
| bargaining power disparity (C79) | price differentials (L11) |
| foreign export supply elasticity (F14) | U.S. importers' market power (L11) |
| two-sided market power (D43) | tariff passthrough (H22) |
| predicted price changes from model (E30) | observed changes during trade war (F69) |