Market power in input purchase and trade

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Abstract

Market power in the input purchase is becoming increasingly common because of growing consolidation and mergers and also due to multinational firms establishing a stronghold in buying inputs in the developing countries. In this study, we formulate a general equilibrium model consisting of a competitive sector and an oligopsony sector which exercises market power over inputs. Our results indicate that if the oligopsony sector incurs a higher marginal factor cost for the intensive factor, basic results of the standard two-sector model continue to hold. But if the marginal factor cost is higher for the non-intensive factor, then factor intensities in the physical and value sense differ and traditional trade propositions such as the Stolper-Samuelson theorem do not hold.

Original languageEnglish
Pages (from-to)478-487
Number of pages10
JournalInternational Review of Economics and Finance
Volume16
Issue number4
DOIs
StatePublished - 2007

Keywords

  • General equilibrium
  • Oligopsony
  • Trade theories

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