Intermediaries with Market Power and the Impact of Agricultural Trade Liberalisation

The issue of market power in agricultural and food markets is typically addressed in the context of domestic markets. In this paper, we consider the impact of market power in the outcome of trade agreements involving a number of countries. The issue of market power is set in the context of growth of preferential trade agreements has been one of the main features of trade policy over the last 20 years. To address these issues, we present a network model of trade where intermediaries in each country can have both seller and buyer power. Buyer power is of particular relevance to this framework since we know from standard trade theory that trade reform can bring pro-competitive effects from trade. However, the exercise of buyer power can potentially offset the potential gains from trade liberalisation. We show in this paper that the impact of buyer power on expanding trade agreements will depend on the nature of trade between countries, whether countries differ in market size, and the existence of already established trade agreements. We highlight the insights from the network trade model with an empirical example of a trade agreement between the UK and the US.