The classical theory on functional income distribution focuses on incomedistribution between capital and labor. Reflecting the industrial structure of theKorean economy, this paper develops an extended theory to explain incomedistribution among capital and labor of large firms, and their suppliers. Itturns out that market power of large firms both in the final goods market andin the intermediate goods market reduces the income of their suppliers. Basedon this theory, the paper also analyzes the effect of changes in the bargainingpower of trade unions in large firms on the income of their suppliers.