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Oligopsony Distortions and Welfare Implications of Trade

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  • Stephen Devadoss
  • Wongun Song

Abstract

While imperfect competition in the output market has garnered extensive focus in the new trade theory literature, input market imperfection has received considerably less attention. Since market power in input purchase has been growing in recent years, it is worth examining the welfare implications of trade arising from oligopsony power. We develop a model consisting of two final goods, one intermediate good, and two primary factors (capital and labor). One final good and the intermediate good employ primary factors, whereas the other final good uses labor and the intermediate input. All markets operate under perfect competition except for the intermediate input, which is oligopsonistic. Using this model, we show that oligopsony can lead to some anomalies such as an increase in the oligopsony output, reward to the intensive‐factor in the oligopsony sector, national welfare, and deterioration of terms of trade, but it always decreases the reward to the intermediate input.

Suggested Citation

  • Stephen Devadoss & Wongun Song, 2006. "Oligopsony Distortions and Welfare Implications of Trade," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 452-465, August.
  • Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:452-465
    DOI: 10.1111/j.1467-9396.2006.00612.x
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    References listed on IDEAS

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    1. Raveendra N. Batra, 1973. "Studies in the Pure Theory of International Trade," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-01423-1, December.
    2. Roger Clarke & Stephen Davies & Paul Dobson & Michael Waterson, 2002. "Buyer Power and Competition in European Food Retailing," Books, Edward Elgar Publishing, number 2405.
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    Cited by:

    1. Swati Dhingra & Silvana Tenreyro, 2020. "The rise of agribusiness and the distributional consequences of policies on intermediated trade," CEP Discussion Papers dp1677, Centre for Economic Performance, LSE.
    2. Swati Dhingra, 2016. "Piggy-Back Exporting, Intermediation, and the Distributional Gains from Trade in Agricultural Markets," 2016 Meeting Papers 712, Society for Economic Dynamics.
    3. Naoto Jinji, 2012. "Factor market monopsony and international duopoly," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 21(2), pages 271-286, February.
    4. Dhingra, Swati & Tenreyro, Silvana, 2021. "The Rise of Agribusinesses and its Distributional Consequences," CEPR Discussion Papers 15942, C.E.P.R. Discussion Papers.

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