This paper examines trade intermediation in global production networks, and unpacks the black box of network formation costs. We establish three new facts in matched data on firm-to-firm import and domestic transactions for Chile: Exporters of all sizes use intermediation services, mix trade modes within products, and set lower prices on intermediated flows. We rationalize these facts in a quantifiable, general-equilibrium model of network formation with suppliers of heterogeneous productivity and matchability, buyers of heterogeneous productivity, and wholesalers that can lower suppliers' relationship-specific costs for a brokerage fee. We present consistent empirical evidence for trade activity across firms and origin countries, and inform how institutions, logistics and customs efficiency, and geographic and cultural-linguistic distance shape network costs. Model quantification reveals that intermediaries widen and deepen global production networks, and thereby induce aggregate welfare gains and heterogeneous effects across firms.

We study the role of firm heterogeneity and imperfect competition for global production networks and the gains from trade. We develop a quantifiable trade model with two-sided firm heterogeneity, matching frictions, and oligopolistic competition upstream. More productive downstream buyers endogenously match with more upstream suppliers, thereby inducing tougher competition among them and enjoying superior sourcing outcomes. We then present consistent empirical evidence using highly disaggregated data on firms' production and trade transactions for France, Chile and China. Downstream French and Chilean buyers import higher values and quantities at lower prices as upstream Chinese markets become more competitive over time, with stronger responses by larger buyers. Chinese suppliers set lower prices and mark-ups to buyers that source from more suppliers. Counterfactual analyses indicate that lower barriers to entry upstream, lower matching costs, and lower trade costs amplify firm productivity and aggregate welfare downstream, with differential effects across firms. These effects operate through a combination of improved buyer-seller matches, gains from variety, and lower mark-ups. Global production networks thus generate greater impacts and cross-border spillovers from industrial policy and trade liberalization.