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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
    File Function: First version, 2017
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    References listed on IDEAS

    as
    1. Liski, Matti & Montero, Juan-Pablo, 2014. "Forward trading in exhaustible-resource oligopoly," Resource and Energy Economics, Elsevier, vol. 37(C), pages 122-146.
    2. Valerie Y. Suslow, 1986. "Estimating Monopoly Behavior with Competitive Recycling: An Application to Alcoa," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 389-403, Autumn.
    3. Swan, Peter L, 1980. "Alcoa: The Influence of Recycling on Monopoly Power," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 76-99, February.
    4. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-661, September.
    5. Soham Baksi & Ngo Van Long, 2009. "Endogenous Consumer Participation And The Recycling Problem ," Australian Economic Papers, Wiley Blackwell, vol. 48(4), pages 281-295, December.
    6. Jean De Beir & Guillaume Girmens, 2009. "Alcoa re-Revisited: Recycling, Market Power and Environmental Policy," Economie Internationale, CEPII research center, issue 120, pages 37-52.
    7. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
    8. Grant, Darren, 1999. "Recycling and market power: A more general model and re-evaluation of the evidence1," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 59-80, January.
    9. Gérard Gaudet & Ngo Van Long, 2003. "Recycling Redux: A Nash-Cournot Approach," The Japanese Economic Review, Japanese Economic Association, vol. 54(4), pages 409-419.
    10. Hollander, Abraham & Lasserre, Pierre, 1988. "Monopoly and the preemption of competitive recycling," International Journal of Industrial Organization, Elsevier, vol. 6(4), pages 489-497.
    11. Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-749, August.
    12. Martin, Robert E, 1982. "Monopoly Power and the Recycling of Raw Materials," Journal of Industrial Economics, Wiley Blackwell, vol. 30(4), pages 405-419, June.
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    More about this item

    Keywords

    Market Power; Recycling; Cournot Competition; Capacity Constraint;

    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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