Unobservable Transactions Price and the Measurement of a Supply and Demand Model for the American Steel Industry

Abstract

This article develops a simultaneous supply-and-demand model of the American steel industry for the years 1920–1972. The analysis takes into account the differences between published (book) and actual transactions prices. The model also provides for the oligopolistic nature of the steel market and the possibility that price may deviate from marginal cost. The demand results are in conformance with theory and earlier empirical work, but on the supply side some problems exist with the input price parameters. A reason for this situation may be that the steel industry is a large user of some inputs, making the relationship between steel output and these factor prices simultaneous.

KEY WORDS:

• Econometric market regression analysis