Market power and cost efficiency: the case of the US aluminum industry

The purpose of this paper is to construct and empirically test a model designed to determine the link between market concentration and price with separate effects of market-power and cost-efficiency in change of industrial concentration. The analysis is conducted within the context of a single oligopoly, specifically, the US primary aluminum industry. Using time-series data, the model indicates that both market-power and cost-efficiency effects are significant resulting in unwavering prices despite diminishing market concentration in the industry throughout the sample period.