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Trade Policy and Market Power: The Case of the US Steel Industry

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  • Bruce A. Blonigen
  • Benjamin H. Liebman
  • Wesley W. Wilson

Abstract

A primary function of trade policy is to restrict imports to benefit the targeted domestic sector. However, a well-established theoretical literature highlights that the form of trade policy (e.g., quotas versus tariffs) can have a significant impact on how much trade policy affects firms’ abilities to price above marginal cost (i.e., market power). The US steel industry provides an excellent example to study these issues, as it has received many different types of trade protection over the past decades. We model the US steel market and then use a panel of data on major steel products from 1980 through 2006 to examine the effects of various trade policies on the steel market. We find that the US steel market is very competitive throughout our sample with the exception of the period in which they received comprehensive voluntary restraint agreements (i.e., quotas) and were able to price substantially above marginal cost. All other forms of protection were in tariff form and had little effect on market power, consistent with prior theoretical literature on the nonequivalence of tariffs and quotas. We also find evidence that market power eroded over time in steel products where mini-mill producers gained sizeable market share, highlighting the role of technology in the market as well.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13671.

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Date of creation: Dec 2007
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Handle: RePEc:nbr:nberwo:13671

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  15. Karen Clay & Werner Troesken, 2003. "Further Tests of Static Oligopoly Models: Whiskey, 1882-1898," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 151-166, 06.
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Citations

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Cited by:
  1. Cameron Hepburn & John Quah & Robert A. Ritz, 2008. "Emissions Trading with Profit-Neutral Permit Allocations," Economics Series Working Papers 2008-W12, University of Oxford, Department of Economics.
  2. Bruce Blonigen & Benjamin Liebman & Justin Pierce & Wesley Wilson, 2010. "Are All Trade Protection Policies Created Equal? Empirical Evidence for Nonequivalent Market Power Effects of Tariffs and Quotas," Working Papers 10-27, Center for Economic Studies, U.S. Census Bureau.
  3. Bruce A. Blonigen & Benjamin H. Liebman & Justin R. Pierce & Wesley W. Wilson, 2012. "Are all trade policies created equal? empirical evidence for nonequivalent market power effects of tariffs and quotas," Finance and Economics Discussion Series 2012-17, Board of Governors of the Federal Reserve System (U.S.).
  4. Laura ROVEGNO, 2010. "Trade Protection and Market Power: Evidence from US Antidumping and Countervailing duties," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010043, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  5. Davis, J. Scott & Huang, Kevin X.D., 2011. "International real business cycles with endogenous markup variability," Journal of International Economics, Elsevier, vol. 85(2), pages 302-316.

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