summar~ and Conclusions The theories of pricing behavior which have been offered to explain long run domestic steel pr icing and the data w...
summar~ and Conclusions The theories of pricing behavior which have been offered to explain long run domestic steel pr icing and the data which' have been presented relevant to those theor ies can now be summarized. Summary of Th~or ies of Domestic Steel Pr icing: (i) Costs and target rates of return, more so than demand, ...~ . are pr ime determinants of pr ices. (ii) Subject to liinitations imposed by imports and minimills, the maJor à omestic mills pr ice to cover full costs plus target rates of return. (iii) Prices are set by the United States Steel Corporation acting as a dominant firm facing a competitive fringe of other domestic suppliers and imports. (iv) The large integrated domestic producers set prices acting as a dominant cartel facing a competitive fringe of smaller domestic suppliers and imports. (v) The pr ic ing of the Un i ted States steel industry is characterized by "barometric price leade~~hip": i.e., even though structurally different from a competitive industry, pr ices are not sustained above competitive levels and they change in a pattern which mimics a competitive industry. ~/ 2/ See Scherer (26, pp. 170-1731 for a more detailed descriprion of barometric price leadership. -168- Evidence Relevant to Steel Pricing: 1.
The United States Steel Corporation's market share has fallen from 65.4 percent in 1902 to 22.1 percent in 1976. However, the decline slowed after 1961. 2. Since 1960, actual steel pr ices have risen and fallen with demand; this was the conclusion of the Rippe and Mancke stud ies and in the fol low ing sect ion fur ther and deta i led documentation of this fact is provided.'~' 3. Since 1960, the United States Steel ~orporation has joined the "chiselers" in offer ing clandestine discounts off the list prices of steel. 4. Beg inning in 1968, the Bethlehem Steel Corporat ion has made a number of efforts to eradicate price cutting by lowering list prices to the erstwhile secret levels. 5. Imports of steel mill products have risen (1.2 percent of apparent steel consumption in 1955; 17.9 percent, in 1971; and 14.1 percent, in 1976), so that they represent a check on the pr ic ing pr act ices of the domest ic indu stry. 6. The rate of return on equity for pr imary iron and steel was less than the average for all manufactur ing for all years from 1958 to 1973, inclusive (from chapter 2). Conclusions. The long run pricing behavior of the United States' steel industry changed after 1959. While theor ies of dominant firm (i i i) or dominant cartel (iv) pr ic ing had some validity prior to 1960, these theories are inconsistent with the evidence just summarized for the post-1960 period. In -169- particular, points 1, 3,4, and 5 of the evidence summary argue against dominant firm pricing while 3, 4, 5, and 6 are evidence against dominant cartel pricing. Similarly, th€ories of steel pricing for the post-1960 period which argue that òemand is unimportant (i), or not very important (i i), do not appear to be consistent with points 3, 4, and especially 2 of the evidence summary. . ~~ . Since 1960, the identity of the industry price leader has varied, with Armco Steel and Bethlehem Steel occasionally sharing the leadership role with U.S. Steel. Price leaders' efforts to raise prices have occasionally been rebuffed as price hikes tended to be followed only when they reflected basic supply and demand conditions. The price leadership that exists in the industry does not appear to have facilitated the sustained at ta inment of monopol ist ic pr ices. It appears the industry's pricing practices are best characterized by the term "barometric price leadership." That is, they reflect underlying demand and supply conditions. II
. CYCLICAL PRICING PRACTICES 1 Many authors have argued that the U.S. steel industry is one of the major industries which "administers prices." While the concept of an administered price varies somewhat, depending on the author, a consensus has deve loped. Admin istered pr ices have come to mean those, characteristic of highly concentrated industries, that do not fall much during general business contract ions and wi 1 1 not ri se much in ensu ing expans ions. -170- Moreover, it is argued that output, inventories, and order backlogs will fall by a greater amount in administered price industries during contractions (26, ch. 12). The evidence on whether the U.S. steel industry has been character ized by this concept of administered pr icing will be examined. Administered pricing would make the U.S. industry more susceptible to import erosion dur ing the trough of the business cycle. Additional questions s~uòied are whether the steel industr ies in the other major producing nations have been character ized by administered pr icing and whether the loss of the U.S. markets to imports is due, in fact, to differences in pricing policies across nations.
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