Testing profit maximization in the U.S. cement industry

Abstract

Motivated by a commonly held intuition that the cement industry is not competitive, we perform a revealed preference test to examine whether the United States cement industry could have been profit maximizing from 1993–1998. Rather than looking at technical efficiency, we create and examine a measure of necessary competitive price taking profit loss of the cement industry using information on aggregate output and aggregate inputs. One contribution of this paper is to compile a comprehensive dataset of United States cement producers, cement production, cement inputs data, and input/output prices. In particular, we combine data found in the U.S. Mines Geological Yearbooks, the Portland Cement Association, the American Energy Review, and the St. Louis Federal Reserve. Assuming technology is static, non-negative profits for firms, and a priori knowledge of inputs/outputs, we find the U.S. cement industry had a necessary competitive price taking profit loss of 755.1 million 1996 dollars.