The Geography of Market Power: Evidence from the Chinese Steel Industry

Loren Brandt (), Feitao Jiang, Yao Luo and Yingjun Su

Working Papers from University of Toronto, Department of Economics

Abstract: This paper examines how the geographic distribution of supply and demand shapes market power in the Chinese steel industry. Drawing on novel data, we develop and estimate an equilibrium model that accommodates spatial demand variations and rich firm heterogeneity—encompassing differences in location, product quality, production coefficients, and cost efficiencies. Using this framework, we simulate the impact of shifts in downstream demand and evaluate the welfare implications of mergers under various market frictions—an issue central to China’s industrial policy. We show that consolidation design is central to welfare outcomes: mergers led by more efficient firms and confined within regions generate substantially larger gains than nationally coordinated consolidation centered on large incumbents. The realized 2018–2024 merger wave achieved only a fraction of attainable welfare improvements. Our simulation results also suggest that as the geographic locus of demand evolves, the effects of industrial reorganization hinge critically on how supply adjusts across regions.

Keywords: Spatial Differentiation; Capacity Misalignment; Market Power; Merger Analysis; Sales Aggregation (search for similar items in EconPapers)
JEL-codes: G34 L13 L61 R12 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2026-02-25
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-820

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