NBER Working Papers by Benjamin H. Liebman

Over the past decades, the steel industry has been protected by a wide variety of trade policies, both tariff- and quota-based. We exploit this extensive heterogeneity in trade protection to examine the well-established theoretical literature predicting nonequivalent effects of tariffs and quotas on domestic firms’ market power. Robust to a variety of empirical specifications with U.S. Census data on the population of U.S. steel plants from 1967-2002, we find evidence for significant market power effects for binding quota-based protection, but not for tariff-based protection. There is only weak evidence that antidumping protection increases market power.

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 ...