Abstract: This paper examines how the geographic distribution of supply and demand shapes market power in the Chinese steel industry.

Drawing on novel data, we develop and estimate an equilibrium model that accommodates spatial demand variations and rich firm heterogeneity

—encompassing differences in location, product quality, production coefficients, and cost efficiencies. Using this framework, we simulate the impact

of shifts in downstream demand and evaluate the welfare implications of mergers and acquisitions under various market frictions—an issue central to China’s industrial policy.