My research focuses on the effect of firms' strategic behavior and market power on international trade.
Price dispersion across buyers within product categories is commonly explained by quality differences in international trade. I use a uniquely fine-grained trade dataset which includes seller names and product descriptions to decompose price dispersion while accounting for quality. Surprisingly, I find substantial residual price variation across buyers of nearly identical products from the same seller. I show these price residuals are strongly negatively correlated with buyer size, which explains 25% of price dispersion across buyers. This is not driven by scale economies or intra-firm trade and suggests market-power mechanisms. To rationalize this finding, I integrate basic industrial organization models into an international trade framework. I show classic oligopolistic price discrimination and oligopsony both imply a positive buyer size - price relationship and cannot explain my findings. However, the data is consistent with price discrimination if larger buyers have outside options that allow them to demand discounts from their suppliers. This has three implications. First, by countervailing the market power of sellers, larger buyers can increase pass-through of global shocks along value chains. Second, countervailing power upstream gives further advantage to initially more productive firms downstream thus increasing firm heterogeneity. Third, larger buyers gain more from output trade liberalization through additional input price reductions.
Vertical FDI and Global Sourcing Strategies of Multinational Firms
I study global organization of production by multinational firms along two dimensions - geography of their inputs suppliers and their ownership structure. I build a multi-country general equilibrium model of trade in intermediate goods, which features two vertically related industries with heterogeneous firms. Importantly, when making their sourcing decisions, final goods producers face fixed costs of importing and fixed costs of vertical integration with their suppliers. As a result, the model shows that ownership over inputs suppliers magnifies any exogenous differences in firms productivity and thus affects their endogenous outcomes, such as prices and sales. The proposed framework allows to study the determinants of intra-firm trade between countries and quantify the effects of trade liberalization or increased protectionism on both intra-firm and between-firm trade. Moreover, it provides rational for investment climate as separate margin of welfare gains from trade.
The Effect of Competition on Prices in Firm-to-Firm Trade: Evidence from the Russian Food Embargo (Preliminary slides)
Global Value Chains: What are the Benefits, and Why Do Countries Participate? (with Faezeh Raei and Borislava Mircheva) IMF Working Papers, 19/18, 2019