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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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  1. Hylke Vandenbussche & Jozef Konings & Linda Springael, 1999. "Import Diversion under European Antidumping Policy," NBER Working Papers 7340, National Bureau of Economic Research, Inc.
  2. Grossman, Gene M., 1986. "Imports as a cause of injury: The case of the U.S. steel industry," Journal of International Economics, Elsevier, vol. 20(3-4), pages 201-223, May.
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  14. 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.
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  17. Konings, Jozef & Vandenbussche, Hylke, 2005. "Antidumping protection and markups of domestic firms," Journal of International Economics, Elsevier, vol. 65(1), pages 151-165, January.
  18. Benjamin H. Liebman, 2006. "Safeguards, China, and the Price of Steel," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 354-373, July.
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Citations

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Cited by:
  1. Cameron Hepburn & John K.-H. Quah & Robert A. Ritz, 2008. "Emissions Trading with Profit-Neutral Permit Allocations," Economics Papers 2008-W12, Economics Group, Nuffield College, University of Oxford.
  2. 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.).
  3. Bruce Blonigen & Benjamin H. Liebman & Justin R. Pierce & Wesley W. Wilson, 2010. "Are All Trade Protection Policies Created Equal? Empirical Evidence for Nonequivalent Market Power Effects of Tariffs and Quotas," NBER Working Papers 16391, National Bureau of Economic Research, Inc.
  4. Scott Davis & Kevin X.D. Huang, 2010. "International real business cycles with endogenous markup variability," Globalization and Monetary Policy Institute Working Paper 60, Federal Reserve Bank of Dallas.
  5. Laura Rovegno, 2013. "Trade protection and market power: evidence from US antidumping and countervailing duties," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(3), pages 443-476, September.

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