Global Production Networks and Imperfect Competition

How do global production networks and market structure interact to shape the gains from trade and competition policy? We develop a quantifiable model with two-sided firm heterogeneity, matching frictions, and imperfect competition. More productive buyers match with more suppliers, which spurs tougher competition, lowers input costs, and raises profits. Reduced-form evidence confirms that larger French and Chilean firms import higher quantities at lower prices as more Chinese suppliers enter, and that suppliers charge diversified buyers lower markups. We estimate the model by extending recent methods for combinatorial discrete-choice problems. Counterfactuals reveal that entry upstream benefits primarily high-productivity buyers, while lower trade or matching costs favor mid-productivity firms. Moreover, the interaction between endogenous networks and markups significantly amplifies the welfare gains from entry upstream, as well as from packaging trade liberalization with reductions in matching or entry costs.