This paper focuses on the potential impact of imperfect competition in determining the outcome of trade liberalisation in commodity markets where the commodity sector forms only a part of the vertical chain. Specifically, we consider the role of imperfect competition in the vertical chain where one or more downstream markets may be imperfectly competitive and where both selling and buying power may exist. In the first part of the paper, the main lessons that arise from the general trade literature are reviewed. In the second part, we outline the issues relating to market power that may arise in commodity markets with special emphasis on successively imperfectly competitive markets. A simple model of a vertical chain with successive market power is outlined. We then show that the welfare effects of trade liberalisation are largely determined by market power throughout the vertical chain. We conclude by highlighting issues that need to be addressed in future research.
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