Michel Azulai (IFS):Competition and the Aggregate Effects of Linking Frictions in Economic Networks

Abstract: Firms in developing countries face a number of frictions to link with alternative suppliers - such as lack of trust, enforcement of contracts, transportation costs. In these environments, two key questions are (i) whether these frictions 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 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 then show an identification result and an estimation strategy that allow us to quantify these effects using transaction level data, together with shifters of prices across transactions. 

Please contact Britta Augsburg at britta_a@ifs.org.uk for the seminar link.