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Rational Atrophy: The U.S. Steel Industry

Sep 1997
Stanford King Center on Global Development Working Paper
9
During the 1970s and 1980s the steel industry in the US enjoyed trade protection. However, higher prices were reflected in a higher wage premium relative to the rest of the manufacturing sector, and in a greater share of profits divested by integrated steel producers. Furthermore, available technological innovations were not adopted on a timely basis. This failure combined with trade protection, allowed new small firms (the minimills) to capture about 40% of the US steel market. In this paper we present a model that rationalizes these facts.