Market Structure Impacts on Market Distortions from Domestic Subsidies: The U. S. Cotton Case

This analysis uses a residual demand elasticity model to measure market power in the international cotton market. The results indicate that China exerts significant market power and affects cotton prices. Those results, combined with a partial equilibrium model of the international cotton market, are used to evaluate the welfare consequences of U.S. cotton subsidy policies for major cotton exporters under alternative assumptions about global market structure. The results indicate that the effects of U.S. subsidies on the world cotton price are much smaller under an imperfectly competitive international market than under a perfectly competitive market scenario; the former appears to be a realistic case.