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Speaker:
Michel Azulai (IFS London)

Abstract: Firms in developing countries face a number of costs and frictions to link with alternative suppliers - such as lack of trust, enforcement of contracts and transportation costs. In these environments, two key questions are (i) whether these costs create anti-competitive effects, (ii) what are the aggregate consequences of this. This project develops a model of economic networks with imperfect competition, where firms choose their network of suppliers, and access to suppliers can have pro-competitive effects. The model is used to analyse the general equilibrium effects of linking frictions over prices, markups, output, and consumer price indices. I show that to evaluate these effects, it is sufficient to have (i) network data on firm-to-firm transactions, (ii) estimates of each firm's demand curve for suppliers, and (iii) estimates of costs of linking to suppliers; in particular, we don't need to estimate firm's production function, productivity. I then show an identification result and an estimation strategy that allow us to estimate these statistics using transaction level data, together with shifters of prices across transactions.

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