A dynamic model of self-enforced relational contracts when sellers hold market power and courts cannot enforce agreements. Using transaction-level Ecuadorian manufacturing data, I find bilateral trade starts inefficiently low and converges toward efficiency over time.
Decomposing NAFTA price changes into markup and marginal-cost components. Domestically-sold goods fell in price as competition rose; exported goods saw markups edge up.
Firms with shareholder ties to the bureaucracy win more government contracts. A sufficient statistic estimates welfare losses of 2–6% of procurement budgets.
Using Ecuador's unanticipated 2014 loan tax, we reject Bertrand-Nash pricing: banks substantially internalize rivals' profits, so competitive assumptions overstate the tax's excess burden.
About 26% of loan markups stem from joint profit maximization rather than competitive pricing. Distortions are largest for small, young firms and new lending relationships.