Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/289959 
Year of Publication: 
2023
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1370
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
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 percent.
Subjects: 
Market power
Global value chains
Pass-through
International trade
JEL: 
F12
F13
F14
F62
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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