Jointly produced metal markets are endogenously unstable

Kihyung Kim

Resources Policy, 2020, vol. 66, issue C

Abstract: The production of many minerals and fossil fuels is unstable, and managing volatilities is an important task for managers. External shocks have been regarded as sources of market instability, but a recent empirical analysis showed that external shocks do not fully explain the price volatilities of coproducts. The present study provides an analytic model that identifies the endogenous sources of the market instability of jointly produced metals using a game-theoretic approach. In this model, a joint product company that produces both a primary product and a by-product competes with two firms: 1) a primary product company that produces only primary products in the primary market; and 2) a by-product company that produces only the by-product in the secondary market. This study models the competition among these firms as single-period, sequential quantity competitions. The results indicate that competition causes market instability if the joint product firm sets its production after observing the decisions of other firms and if the joint product firm has efficient capacity. The numerical example, which is motivated by zinc and indium markets, suggests that the endogenous factor affected the markets in 2013. Moreover, endogenous instability will be more important as the price sensitivity to production quantity increases, the relative size of the by-product market grows, and the by-product production technology improves.

Keywords: Game theory; Quantity competition; Joint product; By-product (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301420719306725
Full text for ScienceDirect subscribers only

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:eee:jrpoli:v:66:y:2020:i:c:s0301420719306725

DOI: 10.1016/j.resourpol.2020.101592

Access Statistics for this article

Resources Policy is currently edited by R. G. Eggert

More articles in Resources Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().