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The Geography of Market Power: Evidence from the Chinese Steel Industry

Author

Listed:
  • Loren Brandt
  • Feitao Jiang
  • Yao Luo
  • Yingjun Su

Abstract

This paper examines how the geographic distribution of supply and demand shapes market power in the Chinese steel industry. Drawing on novel data, we develop and estimate an equilibrium model that accommodates spatial demand variations and rich firm heterogeneity—encompassing differences in location, product quality, production coefficients, and cost efficiencies. Using this framework, we simulate the impact of shifts in downstream demand and evaluate the welfare implications of mergers under various market frictions—an issue central to China’s industrial policy. We show that consolidation design is central to welfare outcomes: mergers led by more efficient firms and confined within regions generate substantially larger gains than nationally coordinated consolidation centered on large incumbents. The realized 2018–2024 merger wave achieved only a fraction of attainable welfare improvements. Our simulation results also suggest that as the geographic locus of demand evolves, the effects of industrial reorganization hinge critically on how supply adjusts across regions.

Suggested Citation

  • Loren Brandt & Feitao Jiang & Yao Luo & Yingjun Su, 2026. "The Geography of Market Power: Evidence from the Chinese Steel Industry," Working Papers tecipa-820, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-820
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    Keywords

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    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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