6 - Governance of the steel industry: What caused the disintegration of the oligopoly?

Summary

For generations, the U.S. steel industry has been a prototypical oligopoly. It has been the subject of innumerable antitrust investigations by Congress, the courts, and economists. Its leaders have taken pride in having overcome the “chaotic” nature of competitive markets, thus maintaining remarkably stable steel prices. In contrast, we now read in the trade press of price rebates that exceed 25% of the list price. Advocates of protectionism blame imports for the industry's loss of price-setting power.

Students of the U.S. steel industry show us that there are now in fact two steel industries, one that tries to cling to oligopolistic practices, and one that is highly competitive (Barnett and Schorsch 1983; Acs 1984; Barnett and Crandall 1986). The latter, the so-called minimills sector, is credited with having captured more than 20% of the domestic steel market, and this sector is expected to continue to thrive. In the future, it is believed, the minimills will alter the structure of the U.S. steel industry permanently.

The deterioration in the competitive position of American integrated steel makers and the subsequent disintegration of the oligopoly is frequently attributed to the oligopoly structure itself (e.g., Borrus 1982; Barnett and Schorsch 1983; Acs 1984). This popular thesis often ascribes the crisis in the U.S. integrated steel industry to subjective factors, such as management's refusal to abandon its oligopolistic behavior. Management, of course, rejects this contention and blames factors outside its control, such as slow market growth, U.S. and foreign government steel policies, and labor, among others (American Iron and Steel Institute 1980).