Essays on Trade and Market Power

Abstract

This dissertation studies how technological changes that reorganize trade affect welfare when firms possess market power. In particular, it examines how the organization of trade shapes market power and how the evolution of market power, in turn, influences the efficiency of trading networks. I study this question in the context of the nationwide rollout of fiber internet in Turkey between 2012 and 2019, which reshaped how firms form and coordinate buyer-supplier relationships within the domestic production network. Using large-scale administrative microdata, quasi-experimental research designs, and structural models, the dissertation analyzes how improvements in digital infrastructure reorganize trade and influence market power.Chapters 2 and 3 develop and test a production network framework in which firms can trade either directly or through wholesalers who economize on search costs but charge markups to recover fixed investments. The analysis shows that improvements in direct trade efficiency reduce reliance on wholesalers but also induce exit among marginal intermediaries, increasing market concentration and raising wholesale markups. Using Turkish VAT data covering the universe of formal domestic firm-to-firm transactions, I document that faster fiber expansion reduces the share of indirect trade, decreases the number of wholesalers, and raises aggregate wholesale markups. A calibrated model implies that while fiber-induced disintermediation increases welfare, the endogenous rise in wholesale markups offsets roughly 30 percent of these gains by exacerbating misallocation.Chapter 4 studies how the same technological change affects manufacturing firms' competition across space by reducing internal trade costs between regions. I document that fiber expansion lowers manufacturing markups, particularly in more tradable sectors, consistent with intensified interregional competition. A spatial quantitative model shows that while these pro-competitive effects reduce within-region misallocation, heterogeneous markup responses and the reorganization of economic activity across provinces can increase spatial misallocation.Together, the findings show that technological progress that reorganizes trade can simultaneously alleviate and amplify distortions arising from market power. The results therefore underscore the importance of complementary trade and competition policies to ensure that the gains from new technologies are fully realized.