Firms' international trade activities and market power

• Applicant: Privatdozent Dr. Yaghoob Jafari
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology ; Economic Policy, Applied Economics
• Term: since 2025
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 551036960

The food sector is one of the most protected economic sectors in international trade; however, the growing number of trade agreements has been increasing competition in this sector. This increased competition impacts firms’ exporting activities, leading to changes in firms’ market power in output markets (the ratio of firms’ prices over marginal costs) and their market power in input markets (the ratio of the marginal value of inputs over prices paid for inputs by firms). Consequently, the changes have welfare implications for various groups, including firms, consumers, and input providers. The changes also depend on the demand side conditions in the markets in which firms sell their products. Understanding such effects and their interaction is crucial for policymakers to formulate trade policies that are in line with domestic policy objectives. It is equally important for firms to adopt strategies aligned with their profitability objectives. Thus, the question is how the international trade activities of firms affect their market power in output and input markets. This project aims to analyze the impact of firms’ export behavior on firms’ market power in output and input markets while uncovering the mechanisms driving these impacts. This includes the analysis of (i) the impact of firms’ export activities on firms’ (domestic and foreign) market power in output markets, (ii) the impact of demand side conditions on firms’ (domestic and foreign) market power in output markets, and (iii) the impact of firms’ export activities and demand side conditions on firms’ market power in the labor input market. To achieve these objectives, the study utilizes combine firm-level data combined with customs data for the French food processing industry as a case study, and apply econometric approaches to estimate the impacts. The project contributes to the literature in three important aspects. First, in contrast to the recent literature that analyze the impact of firms’ export activities on aggregate markups as proxy for market power, this study analyzes the impact of firm export activities for the markups generated in the domestic and export markets separately. The second contribution of this project will be to analyze the impact of demand-side conditions, including technological advancements and consumer preferences, on firms’ market power in output market. The third contribution of the project will be to analyze the impact of firms’ export activities and the demand side conditions that they face on firms’ firms’ market power in input markets.

• DFG Programme: Research Grants