Steel Supply Strategies
Subject Competition and collusion
Topic Oligopoly
Key Words Overcapacity, prices, imports, bankruptcy, capacity, consolidation, negotiations, tariffs, antitrust laws, costs, production, subsidies, World Trade Organization
News Story

Overcapacity in the world steel industry has led to the lowest steel prices in twenty years. American imports of steel are rising as a result. Nearly thirty U.S. steel companies are in bankruptcy. The U.S. believes that domestic capacity needs to be reduced through consolidation, global capacity needs to be decreased through negotiations, and tariffs need to be imposed on U.S. imports temporarily.

U.S. Steel has proposed to lead a consolidation of the domestic industry, but special immunity from antitrust laws may be required. The company also wants government relief from the pension and healthcare costs for retired workers.

Officials from the top steel-producing nations have agreed to cut production by approximately 100 million tonnes over ten years. However, the U.S. would like to see double the cuts and over a shorter time period. There is also skepticism as to whether the cuts promised will materialize. If the U.S. imposes tariffs, the European Union has said it would scupper the talks on capacity reduction.

The U.S. would also like steel subsidies around the world to end. It will bring the matter up in the new round of World Trade Organization talks.

(Updated May 6, 2002)

1. Based on your general knowledge, what factors make the U.S. steel industry oligopolistic?
2. a) How does the existence of the world steel industry make the oligopolistic U.S. steel industry behave in a more competitive manner?
b) Is this good or bad? For whom? Refer to the news story.
3. a) What are the antitrust problems that might result from U.S. Steel leading a consolidation of U.S. steel companies?
b) What would be the economic benefits of having fewer, but larger, U.S. steel firms?
4. Why can negotiations over world steel-making capacity proceed without antitrust concerns?
5. a) How would the consolidation of the world steel industry affect the degree of competition in the industry? Why?
b) What would likely happen to steel prices? Why?
Source Ted Alden and Peter Marsh, "World's big steel producers ready for hard talking," Financial Times, February 7, 2002.

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