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Assessing market structures in resource markets — An empirical analysis of the market for metallurgical coal using various equilibrium models

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  • Lorenczik, Stefan
  • Panke, Timo

Abstract

The prevalent market structures found in many resource markets consist of high concentration on the supply side and low demand elasticity. Market results are therefore frequently assumed to be an outcome of strategic interaction between producers. Common models to investigate the market outcomes and underlying market structures are games representing competitive markets, strategic Cournot competition and Stackelberg structures that take into account a dominant player acting first followed by one or more players. We add to the literature by expanding the application of mathematical models and applying an Equilibrium Problem with Equilibrium Constraints (EPEC), which is used to model multi-leader–follower games, to a spatial market. Using our model, we investigate the prevalent market setting in the international market for metallurgical coal between 2008 and 2010, whose market characteristics provide arguments for a wide variety of market structures. Using different statistical measures to compare model results with actual market outcomes, we find that two previously neglected settings perform best: First, a setting in which the four largest metallurgical coal exporting firms compete against each other as Stackelberg leaders, while the remainders act as Cournot followers. Second, a setting with BHPB acting as sole Stackelberg leader.

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  • Lorenczik, Stefan & Panke, Timo, 2016. "Assessing market structures in resource markets — An empirical analysis of the market for metallurgical coal using various equilibrium models," Energy Economics, Elsevier, vol. 59(C), pages 179-187.
    • Handle: RePEc:eee:eneeco:v:59:y:2016:i:c:p:179-187
    DOI: 10.1016/j.eneco.2016.07.007
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    More about this item

    Keywords

    Applied industrial organisation; Stackelberg games (MPEC); Multi-leader–follower games (EPEC); Cournot oligopolies (MCP); Resource markets;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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