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Mineral Economics

, Volume 31, Issue 1–2, pp 71–76 | Cite as

Assessing the market power of mineral commodity producers

  • John E. Tilton
Original Paper

Abstract

The major producers of most mineral commodities possess large market shares and so can raise the market price by restricting their output. For this reason, many assume that they possess market power. However, this article argues that there are two necessary conditions for market power: a market share sufficient to raise the market price is the first; the second is the incentive to do so. Firms that fulfill the first condition do not necessarily satisfy the second. This is because maximizing profits this year by restricting output and raising the market price usually has negative consequences for future profits. In particular, a price higher than the competitive price over time reduces market demand below what it otherwise would be by encouraging consumers to switch to substitute materials and to introduce material-saving new technologies. The higher price also encourages rival firms to increase their capacity and output. The result is a smaller market share and lower, even possibly negative, profits in the future. Failure to recognize the second necessary condition for market power provides a plausible explanation for the widespread perception that the major mineral producers—both firms and countries—possess substantial market power, even where hard evidence of such power is lacking.

Keywords

Market price Market power Market share Mining Mineral commodity markets Competition Antitrust policy 

Notes

Acknowledgements

Without implicating, I would like to thank Phillip Crowson, Juan Ignacio Guzmán, David Humphreys, and an anonymous referee for their helpful comments on early versions of this article.

References

  1. Radetzki M, Wårell L (2017) A handbook of primary commodities in the global economy, Second edn. Cambridge University Press, Cambridge.  https://doi.org/10.1017/9781316416945
  2. Tilton JE, Guzmán JI (2016) Mineral economics and policy. Routledge for RFF Press, New York, NYGoogle Scholar
  3. US Geological Survey (2017) Mineral Commodity Summaries 2017. Available at https://minerals.usgs.gov/minerals/pubs/mcs/

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2017

Authors and Affiliations

  1. 1.Division of Economics and BusinessColorado School of MinesGoldenUSA
  2. 2.Department of Mining EngineeringPontificia Universidad Católica de ChileSantiagoChile

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