Subsidization and Market Power in the Copper Industry: Evidence From the 20th Century

摘要

This paper analyzes the long-run price of copper for the presence of market power andother market irregularities. A varying-parameter simultaneous-equations model is used toestimate annual market conduct parameters for copper from 1900 to 1997. The conductparameter measures an elasticity-adjusted price-cost margin. The paper provides evidence ofsubsidization occurring during 1916-26 and 1961-73 as well as possible market power occurringduring the first decade of 1900s. As much as I would like to claim that my empirical analysiscoincides with qualitative analyses of copper market irregularities over the same period, I canonly do so unsatisfactorily. When the estimated conduct parameter results are examinedconcurrently with the 10- and 20-year moving-average real price of copper: i) the resultsindicating an episode of market power in 1907-09 coincide with higher than average long-runprices, ii) results indicating an episode of subsidization in 1918-26 coincide with lower thanaverage long-run prices, and iii) results indicating an episode of subsidization in 1961-73 coincidewith lower than average long-run prices. If the prices of copper in these periods are adjusted tocorrespond to “more” competitive prices, then a “competitive” price path of copper indicates thatthere has been a much lesser decline in the price of copper over the twentieth century.