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Rational Atrophy: The U.S. Steel Industry

Sep 1997
Stanford King Center on Global Development Working Paper
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.