Imperfect Competition in Firm-to-Firm Trade

Abstract

Abstract This paper studies the implications of imperfect competition in firm-to-firm trade. Exploiting data on the universe of sales relationships between Belgian firms, we document that firms’ markups increase in the average input shares among their buyers. Motivated by this fact, we develop and estimate a model where firms charge buyer–supplier-specific markups that depend on the bilateral input shares. We find markup dispersion within firms across buyers creates substantial welfare loss: Aggregate welfare increases by around 6% when firms are banned from charging different markups across buyers.