Prospects of Competition from Abroad in Major Manufacturing Oligopolies

• Author: Peter C. Frederiksen
• DOI: 10.1177/0003603X7502000204
• Published date: 01 June 1975
• Date: 01 June 1975
• Subject Matter: Article

PROSPECTS

OF COMPETITION FROM ABROAD

IN MAJOR MANUFACTURING OLIGOPOUES

by

PETER

C.

FREDERIKSEN-

I.

INTRODUCTION

Price

competition

is frequently avoided where a few

sellers furnish almost the whole supply and persistently

higher profits

are

secured

than

in other industries with sub-

stantially the same perceived risk. This

paper

investigates

whether, as an alternative to

antitrust

proceedings to

break

up

large

companies to secure price competition,

the

govern-

ment might encourage the

entry

of firms

from

abroad.'

This

proposal is attractive

for

several reasons.

First,

the relief is structural. Hence the intensification

of competition is thought likely to persist. One of the main

constraints on oligopolistic coordination of non-price competi-

tion is the number of sellers in the industry. More often

than

not, foreign

entrants

would need to engage in price competi-

tion to secure aviable foothold in the U.S. market. Second,

the prospective rivals

are

already successful producers,

and

little time,

if

any, would be required

for

entry

into the do-

mestic market.

Third,

students of international

trade

have

established

that

whenever goods

and

services flow freely be-

tween two nations both countries benefit. The gains

from

trade

are

a more efficient use of resources, increased

real

in-

come,

and

lower prices.

-Assistant Professor of Economics, Defense Resources Manage-

ment Education Center, Naval Postgraduate School, Monterey, Cali-

fornia.

1This article has been developed from the author's dissertation

"Prospects of Competition From Abroad in Major Manufacturing

Oligopolies: Case Studies of

Flat

Glass,

Primary

Aluminum, Type-

writers, and Wheel Tractors" (unpublished Ph.D. dissertation, Wash-

ington State University, 1974). The author wishes to thank Professor

Frank

J.

Kottke for his valuable assistance.

339

340

THE

ANTITRUST

BULLETIN

The federal government can encourage the

entry

of firms

from abroad in several ways.

Any

trade

barriers

that

pro-

tect industries in which price competition

has

atrophied

should be removed,"

In

addition, the government should pre-

serve the independence of foreign suppliers from acquisition

by domestic producers.

Except

where the public's health or

safety

would be jeopardized, the government should revise

current

customs procedures to assure foreign suppliers a

free

and

easy access to the American market.

Economists have long

argued

that

entry

from

abroad

would promote competition in the domestic industry. How-

ever, empirical testing of the proposition

has

been scarce.

The following

four

sections examine whether the

entry

of

firms from

abroad

has resulted in price competition in

four

major

domestic oligopolies: sheet glass,

primary

aluminum,

typewriters,

and

wheel tractors,"

In

each industry, imports

have either increased recently

or

form

asignificant

part

of

the domestic supply.

In

the

last

section

an

estimate is offered

of the success of

past

public policy in promoting

import

com-

petition in the

four

industries. Recommendations

are

made

for

future

public policy in these

and

other

large

concen-

trated

industries.

2The authors of a recent

paper

in this Journal concluded

that

"trade

barriers ought to be considered as an element of

antitrust

policy or, failing that,

that

trade

policy debates ought to seriously

consider the potential competitive effects of tariff changes." See

Peter

J. Ginman

and

Peter

M. Costello, "Vertical Market Power, the Struc-

ture

of Tariffs,

and

Antitrust

Policy," The

Antitrust

Bulletin, 19

(Summer,

1974),433.

SThese

four

industries were chosen from a list of 33 identified

by Professor

Frank

J. Kottke.

For

each, recent

annual

domestic

production exceeded $500 million

and

for 10 years the 4-firm con-

centration -ratio has been

at

least .70. Tariff levels

and

the import

share of domestic

supply

for 1963, 1967

and

1971 were also developed

by Kottke. See

Frank

J. Kottke, "How Significant Is Competition

From

Abroad as a Curb on Large U.S. Oligopolies?" (unpublished

manuscript, Washington State University, 1974), pp. 4-7.

PROSPECTS

OF

COMPETITION

FROM

ABROAD

341

II.

THE

SHEET

GLASS

INDUSTRY

Of the domestic consumption of flat glass (rolled, plate

and

flat, and sheet glass) in 1970, 45 percent by quantity was

plate and float glass

and

33 percent sheet glass."

Importers

are

precluded from alarge

part

of the domestic plate and float

glass market in view of the close ties between the leading

American producers of glass

and

automobiles.

Import

com-

petition has been most noticeable in the sheet glass industry.

The discussion of this

industry

is divided into

four

periods,

treating, respectively, 1950 to 1959, 1960 to 1966, 1967 to

1970,

and

1971 to 1972.

1950-1959

With

minor exceptions, domestic consumption of sheet

glass rose in the 1950's.

At

the same time imports increased

substantially and the

import

share of domestic consumption

grew rapidly from 2percent in 1950 to 25 percent in 1959.

s

Two reasons account

for

this circumstance.

First,

domestic

producers were unwilling to increase capacity

for

fear

of over-

production and subsequent price decreases which

had

been

experienced before World

War

II.

Second,

tariff

duties were

reduced in 1948

and

1951, and in each

year

between 1956

and

1958. A weighted average ad valorem equivalent

tariff

rate,

as developed by the U.S.

Tariff

Commission, decreased from

30 percent in 1947 to less

than

14 percent in 1961.

6

At

first, members of the domestic oligopoly largely ignored

their

overseas rivals. Not until the

import

share rose to 13

percent in 1955 did American suppliers become concerned

about foreign competition. Between 1950

and

1955, price in-

40 Calculated from U.S. Tariff Commission,

Flat

Glass and Tem-

pered Glass, Publication No. 459 (Washington, D.C.: U.S. Tariff

Commission, 1972), p. A-llO.

sAppendix Table L

6. U.S. Tariff Commission, Publication No. 459, pp. A-103

and

A-lOB.