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Languages: English
Types: Doctoral thesis
Subjects: HD
This thesis aims at understanding how manufacturers' heterogeneity affects the configuration of trading relations and prices in a dynamic environment. The institutional context I study is that of the Ready Made Garment sector in Bangladesh over the 2005 - 2012 period. The research here represents a contribution to that goal in four dimensions. First, accessing customs records we constructed a dataset containing buyer - seller trade interactions at a disaggregated level, including volumes and unit prices of the traded goods and, for a subsample, prices and quantities of the inputs required for manufacturing them. This feature allows us to go a step further than most studies based on matched importer - exporter data and opens a fruitful research agenda. Second, using this dataset I offer a first characterisation of the dynamics of the relations between manufacturers and large international buyers in matters of (i) duration of the relations, (ii) evolution of volumes, prices, orders and profitability over time, (iii) heterogeneity of the manufacturers and (iv) the probability of trading links arising. I ´┐Żnd that relations with large buyers tend to be exclusive, that higher prices are associated with longer lasting relations, which tend to grow over time and fail whenever the manufacturer starts dealing with another large player. Importantly, I present a characterisation of suppliers heterogeneity novel in the literature and show evidence on two salient facts: the higher the heterogeneity across suppliers faced by a buyer, the more persistent its relations are and the higher the markup the buyer is willing to pay. Third, I develop a dynamic discrete choice game of linking and bargaining that realises those patterns in the data. I implement an algorithm that computes Markov Perfect Equilibria to discuss aspects of computation, convergence and multiple equilibria in the game and I scan a large parameter space to characterise the mechanisms that drive the dynamics in the industry. Fourth, I present the structural approach developed by Lee and Fong (2013) for estimating network formation games with endogenous bargaining and discuss three aspects in which its application is not immediate in my setting. These are related to (i) the availability of prices in our data, (ii) the difficulties in recovering conditional choice probabilities from the data, and (iii) the construction of the distance score. These difficulties lead to a pseudo Monte Carlo exercise that compares (sixteen) alternative estimation procedures. This preliminary study suggests that restricting the objective function to the observed states, using an auxiliary parametric assumption on the conditional choice probabilities in unobserved states and exploiting the data on prices could be fertile paths to explore towards adapting Lee and Fong's approach to estimate structurally the parameters of my game with the data we constructed.
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