Monopoly power,barriers to competition and the pattern of price differentials in international trade

Numerous studies have attempted to assess the influence of market structure on performance in domestic markets of industrial countries. With few exceptions, these investigations have shown that prices and profits are higher, and a less efficient allocation of resources prevails, in markets where agressive competition is absent. Using techniques similar to there applied in the industrial market studies, this analysis examines the pattern of iron steel prices in international trade. The findings parallel those for the industrial organization investigations. Typically, international markets which are more concentrated, or which rely on a smaller number of trade contacts, bear higher prices. Also, the magnitudes of these excess price margins are such as to have important policy implications since they constitute a serious drain on the foreign exchange reserves of some developing countries.