Price Reductions in Response to Increased Competition

Abstract

While the price level equations explain more than two thirds of the year-to-year price variation, they do not explain the extent of very large price reductions in certain metals in the early 1980s. An interesting hypothesis is that these reductions were one-time adjustments to newly competitive conditions specific to those metals. An extension of this hypothesis would have it that the expansion of foreign sources of supply into the United States market can be credited not only with increasing supply in general, but, more important, with causing an outbreak of competition in those metals previously dominated by one or few suppliers.