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Recycling of a Primary Resource and Market Power: The Alcoa Case

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  • Bocar Samba BA

    (CERDI)

Abstract

The purpose of this paper is threefold. First, it investigates the influence of the prospect of recycling on the per-period market power of an extractor, which can be associated with Alcoa when the recycling sector it faces is competitive. Second, it analyzes whether or not the extractor’s first period market power is affected when it is capacity constrained. Third, it explores whether the structure of the recycling sector affects the extractor’s per-period market power or not. Toward these ends, we study a two-period Cournot framework where the extractor produces aluminum over two consecutive periods. In the second period, it engages in competition with a recycling sector that can be competitive or not. Our results run as follows. (1) When the recycling sector is not competitive, recycling does not affect the extractor’s first period market power but increases its second period market power. (2) When the recycling sector is competitive, the extractor’s second period market power increases with the recycled output but becomes lower (compared to the non-competitive case), while its first period market power can be lower or higher (compared to the non-competitive case). Then, it can increase or decrease with the recycled output. (3) In either case, the extractor’s first period market power further increases when the primary resource constraint is binding. (4) We also show that the extractor’s market power can increase or decrease over time.

Suggested Citation

  • Bocar Samba BA, 2017. "Recycling of a Primary Resource and Market Power: The Alcoa Case," Working Papers 2017.27, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2017.27
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    File URL: http://faere.fr/pub/WorkingPapers/Ba_FAERE_WP2017.27.pdf
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    References listed on IDEAS

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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