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Testing for Market Power under the Two-Price System in the U.S. Copper Industry

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Abstract

Before 1978, most of the U.S. domestic copper production and an important fraction of the imports were traded at a price set by the major U.S. producers. Simultaneously, the rest of the world was trading copper at prices determined in auction markets. This two-price system ended in 1978, when the largest U.S. producers began using the Comex price of refined copper as a benchmark for setting their prices. Using this regime shift I test empirically the competitive behavior of the US copper industry before 1978. The results show that copper prices were close to the ones predicted by a competitive model of the industry.

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Paper provided by Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines in its series ILADES-Georgetown University Working Papers with number inv159.

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Length: 34 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:ila:ilades:inv159

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Keywords: Copper Industry; Market Power;

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  1. Patricia T. Foley & Joel P. Clark, 1982. "The Effects of State Taxation on United States Copper Supply," Land Economics, University of Wisconsin Press, vol. 58(2), pages 153-180.
  2. Hart, Sergiu & Kurz, Mordecai, 1983. "Endogenous Formation of Coalitions," Econometrica, Econometric Society, vol. 51(4), pages 1047-64, July.
  3. Vial, Joaquin, 1992. "Copper consumption in the USA: Main determinants and structural changes," Resources Policy, Elsevier, vol. 18(2), pages 107-121, June.
  4. James G. MacKinnon & Nancy D. Olewiler, 1978. "Disequilibrium Estimation of the Demand for Copper," Working Papers 315, Queen's University, Department of Economics.
  5. Vives, Xavier, 1986. "Rationing rules and Bertrand-Edgeworth equilibria in large markets," Economics Letters, Elsevier, vol. 21(2), pages 113-116.
  6. E. C. Hwa, 1979. "Price Determination in Several International Primary Commodity Markets: A Structural Analysis (La détermination des prix sur plusieurs marchés internationaux de produits primaires de base: Analy," IMF Staff Papers, Palgrave Macmillan, vol. 26(1), pages 157-188, March.
  7. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  8. Stewardson, B R, 1970. "The Nature of Competition in the World Market for Refined Copper," The Economic Record, The Economic Society of Australia, vol. 46(114), pages 169-81, June.
  9. Hubbard, R Glenn & Weiner, Robert J, 1989. "Contracting and Price Adjustment in Commodity Markets: Evidence from Copper and Oil," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 80-89, February.
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