ABSTRACT This paper develops a framework to measure how markups amplify prices through global production networks and to attribute final‐demand price wedges to upstream country‐industry sources. The approach defines a compound markup as the ratio of observed prices to counterfactual pure‐cost prices that would prevail if all markups in the network were one. Using an input‐output price model under a Cobb‐Douglas benchmark, the method yields an implementable mapping from direct markups to network‐propagated wedges and an exact decomposition into upstream contributions. The framework is implemented with the World Input‐Output Database 2016 release. The decomposition identifies upstream nodes with high markup centrality and quantifies the international incidence of the aggregate wedge, including destination‐specific attributions that separate domestic from foreign contributions and an exact ordered ranking of foreign‐incidence exposure across WIOD destinations. Compound markups provide a rigorous accounting of how market power propagates through global value chains, with most of the aggregate wedge explained by a small number of propagation rounds and concentrated upstream contributors.
Constantin Colonescu (Thu,) studied this question.