Theory and Policy Seminar, Series 207

National Academy of Development and Strategy (NADS), RUC

Theory and Policy Seminar, Series 207

A Global Perspective on the Incidence of Monopoly Distortions

Reported by: Ding Siying (School of International Trade and Economics , University of International Business and Economics)

Moderator: Qin Cong (National Academy of Development and Strategy, Renmin University of China)

Time: April 23, 2025 (Wednesday) 14:00-15:30

Venue: Room 1133, 11th Floor, Lide Building

Abstract:

We develop a semi-parametric framework to measure the unequal incidence of monopolistic markup distortions in the global economy. Nesting a broad class of quantitative trade models, our framework identifies two channels through which trade integration reshapes the welfare cost of markups: (1) change in markup dispersion through pro-competitive effects, and (2) international profit-shifting, which represents zero-sum transfers between countries through excess profit payments. We present a dual interpretation of the latter channel: markups function as decentralized tariffs that distort the terms of trade in favor of high-markup exporters. Drawing on global firm-level data on markups and profit ownership, we find that international profit-shifting has significantly lowered the welfare cost of markups for high-income countries while magnifying it for low-income nations. This asymmetry arises because high-income countries supply higher markup goods and receive a disproportionate share of global excess profits. We estimate that these transfers represent an 8.2% tariff burden on low-income countries, far exceeding the preferential tariff benefits they receive under existing trade agreements.