The U.S. copper market (1975 to 1981): an inquiry into producer behavior
Jordan, Deane Norman
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It has been alleged that the major producers of refined copper in the United States have sufficient market power to enable them to"administer" their own prices. From the early 1960s until about mid-1978, the differences between producer prices and those determined in the auction markets have often been significant, but since then producer prices have followed auction prices closely. The thesis adopts another view of producer pricing behavior; instead, it hypothesizes that the producers behave as"price takers" and trade copper at or near auction prices, either by design or because they do not have sufficient market power to do otherwise, and that they did this also in times when producer prices were significantly different from auction prices prior to mid-1978. To test this hypothesis, an econometric disequilibrium model, based on the"short-side" methods of estimating supply and demand schedules, is formulated to explain producer behavior for the subperiod from July 1978 to December 1981 assuming that the producers traded refined copper at auction prices. The model is then applied to the subperiod from January 1975 to June 1978 assuming that the producers traded refined copper at auction prices during this subperiod also. The coefficients of the equations in the model are then tested for equivalence between the two subperiods by means of the Chow test and a dummy variable technique in order to provide evidence in support of the hypothesis. Different behavior for the two subperiods is discovered, however, implying that producers may have been acting in response to administered prices instead of auction prices during the first subperiod.
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