Market Power in Foreign Input Markets: Evidence From Chinese Manufacturing Firms

Large manufacturers may obtain better terms from foreign suppliers when they account for an important share of demand. We study this buyer power using matched customs and production data for Chinese manufacturing firms from 2000 to 2007. Measuring buyer power for each imported product and source country reveals substantial differences across firms that aggregate input measures conceal. Pure processing‐trade firms have higher average buyer power, whereas pure ordinary‐trade firms experience larger increases over time. Within firms, buyer power is higher when processing trade accounts for a larger share of imports and when input tariffs are lower. Together, these patterns connect firms' purchasing leverage to their trade regime and exposure to input tariffs.