Soviet market power and pricing behaviour in Western export markets

Abstract

INCREASED involvement of the Soviet Union in world markets over the past two decades has led to a continuing debate in the West over the distribution of trade benefits between the USSR and its Western trade partners. I Part of the concern with this distribution derives from the common perception that the Soviet state monopoly of foreign trade enables the USSR to earn monopoly (or monopsony, as the case may be) profits in East-West trade at the expense of Western firms. Some observers have been making the point for some time, however, that the existence of this internal, institutional monopoly over Soviet foreign trade does not necessarily translate into Soviet 'market power' on Western markets.2 (By 'market power' we mean the ability to affect the prices paid for imports and received for exports.) Indeed, with the USSR in recent years accounting for less than 2% of the foreign trade turnover of OECD countries, many observers, including this one, have tended to suggest that the Soviet Union enjoys little market power on Western markets. Heretofore, however, there has been no systematic attempt to investigate the degree of Soviet market power and Soviet pricing behaviour on Western markets. This study examines, for the first time in an intensive and disaggregated way, the degree of Soviet market power in Western export markets. Although market power is easy to define (as above), it is very difficult to measure. Obviously market share in general has a bearing on the degree of market power, but there is no magical market-share criterion which we may use in distinguishing between a 'price taker' and a potential 'price maker' in a given market. Furthermore, it is not always clear how the relevant market for market-share calculations should be defined. Moreover, as 'price leadership' and some other oligopolistic models suggest, having a sizeable market share does not necessarily mean that a given exporter will actively use its market power. For the purposes of this paper we will consider a share of 10% or more in a relevant market as an indicator of potential market power. How Soviet organizations choose to use their market power, when they have it, is another question. Whether Soviet foreign trade organizations (FTOs)