Multilateral market power in input-output networks

This paper develops a strategic model of large firms connected in an input–output network, where firms exert market power in both input and output markets through double auctions. Markups and markdowns are determined by firms’ centrality in a network connecting goods. Many standard models are recovered as special cases in which the ability of firms to affect some prices is restricted. In comparison, multilateral market power increases the final price and modifies the division of surplus among firms. As a result, it is key for applications such as the evaluation of the welfare impact of mergers and the diffusion of productivity shocks.