A study of the price leadership patterns of the steel industry, 1949-1969

Date

1970

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Abstract

The steel industry of this country has changed prices by the means of a price leader-follower mechanism. This mechanism can be seen to fit a certain pattern for the years 1949-1958. The price leader was United States Steel Corporation (U.S. Steel). Prices of all basic steel products were changed at a given time-usually following a negotiated labor-wage increase. Other steel companies followed within a week any increase in base prices posted by U.S. Steel. The period from 1958 through 1962 saw no major price changes. The price changing mechanism to emerge in 1963 was quite different from the pre-1958 pattern. It could still be termed a leader-follower mechanism but was much less structured with respect to leadership identity, product scope coverage, timing of price increases, and annual magnitude of overall price change. It can be observed that about 1962, the role of U.S. Steel became that of censor or firmer of already initiated price changes with Bethlehem Steel Corporation emerging as a price change initiator. Prices were changed on only one or a few products at a time with price changing incidents occurring more frequently throughout the year to bring other product prices in line with those previously changed. (During this period only one "across-the-board" price change was attempted. It was subsequently "rolled back" after the failure of U.S. Steel and others to ratify the move.) Also, the overall annual impact of increasing prices by this type of price changing mechanism was less than that observed in the previous period. In order to explain why this change of price changing mechanisms occurred, these market variables should be considered relevant. 1. Import competition. This variable became important in 1958 and has increased in effect since that time. Imports, due to their selective impact on the product lines of domestic companies, tend to make across-the-board increases less feasible. 2. The growth of substitute products. Like imports, this type of competition effects only a few products at a time and puts pressure on any attempted across-the-board increases. 3. Government pressure. This type of pressure has been present throughout the study period. Although this pressure has been aimed at any type of price increase, it tended to discourage across-the-board increases and this was especially true after 1961. 4. Changes in market participation. This market variable is structural and long-run in nature. It entails the usurpation of the market shares of large integrated firms by small specialty companies. The effect is to undermine the discipline necessary to perpetuate a rigid follow-the-leader price changing mechanism.

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Steel industry

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