ABSTRACT
The significant government role arises for several reasons. Large integrated steel producers have very high fixed costs of plant and equipment. In many countries worker layoffs are unacceptable, and labor costs become fixed regardless of the amount of steel produced. Even in the United States, where layoffs are more common, health and pension benefits to retired union workers represent a significant fixed cost that must be met regardless of actual output. Under such cost conditions, firms are likely to continue producing even when prices fall substantially, a sign of inelastic supply. Falling profits create a strong incentive to lobby for government intervention.
