Dynamic market power in an exhaustible resource industry: The case of rare earth elements

Frank Pothen

No 14-005, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper investigates China's capability to exert power on Rare Earth markets until 2020. A dynamic partial equilibrium model allowing for a disaggregated representation of the mining sector and endogenous investment in capacities is developed. The model is calibrated on a novel dataset on Rare Earth mines. Simulations show that Chinese market power is a transitory phenomenon. In 2014 and 2015, Light Rare Earth prices increase by 21 per cent and Heavy Rare Earth prices more than double compared to free trade, if assuming export restrictions to remain unchanged. Market power on Light Rare Earths vanishes almost completely by 2017 due to the entry of new suppliers, while it persists until 2019 for Heavy Rare Earths. Export restrictions imply a loss of Marshallian welfare of US$ 1.96 billion outside China. In the short run, even moderate cuts in export quotas can increase exerted market power substantially. Altering tariffs induces smaller but more persistent effects. Sensitivity checks indicate that the results are robust, but delayed opening of new mines and demand shocks can be important for China's capability to exert market power.

Keywords: Partial Equilibrium Model; Metals; Rare Earths; Export Restrictions; Exhaustible Resources (search for similar items in EconPapers)
JEL-codes: F17 Q31 Q37 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/90146/1/776406949.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:14005

Access Statistics for this paper

More papers in ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().