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Estimation of Market Power in a Nonrenewable Resource Industry

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  • Gregory M. Ellis
  • Robert Halvorsen

Abstract

In nonrenewable resource industries, the existence of a markup of price over marginal market cost may reflect the existence of an implicit user cost for the resource rather than market power. We show that valid estimates of market power can be obtained by the joint estimation of a restricted cost function and an inverse supply relation. Estimation of the model with data for the largest firm in the international nickel industry indicates that output price substantially exceeded marginal market cost, with most of the difference due to the exercise of market power rather than the user cost of the resource.

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  • Gregory M. Ellis & Robert Halvorsen, 2002. "Estimation of Market Power in a Nonrenewable Resource Industry," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 883-899, August.
    • Handle: RePEc:ucp:jpolec:v:110:y:2002:i:4:p:883-899
    DOI: 10.1086/340777
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    Cited by:

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    2. Slade, Margaret E., 2004. "Competing models of firm profitability," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 289-308, March.
    3. John Livernois & Henry Thille & Xianqiang Zhang, 2006. "A test of the Hotelling rule using old‐growth timber data," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(1), pages 163-186, February.
    4. Lee, Myunghun, 2008. "Environmental regulations and market power: The case of the Korean manufacturing industries," Ecological Economics, Elsevier, vol. 68(1-2), pages 205-209, December.
    5. Hart, Rob, 2016. "Non-renewable resources in the long run," Journal of Economic Dynamics and Control, Elsevier, vol. 71(C), pages 1-20.
    6. Mikael Juselius & Moshe Kim & Staffan Ringbom, 2015. "Do markup dynamics reflect fundamentals or changes in conduct?," Empirical Economics, Springer, vol. 48(3), pages 1119-1147, May.
    7. Hinnerk Gnutzmann & Oskar Kowalewski & Piotr Śpiewanowski, 2020. "Market Structure and Resilience: Evidence from Potash Mine Disasters," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 911-933, May.
    8. Spiro, Daniel, 2014. "Resource prices and planning horizons," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 159-175.
    9. Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
    10. Jianzhong Xiao & Xiaolin Wang & Ran Wang, 2016. "Research on Factors Affecting the Optimal Exploitation of Natural Gas Resources in China," Sustainability, MDPI, vol. 8(5), pages 1-13, May.
    11. Gregor Schwerhoff & Ottmar Edenhofer & Marc Fleurbaey, 2020. "Taxation Of Economic Rents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(2), pages 398-423, April.
    12. Lee, Myunghun, 2008. "Environmental regulation and production structure for the Korean iron and steel industry," Resource and Energy Economics, Elsevier, vol. 30(1), pages 1-11, January.
    13. Lee, Myunghun, 2007. "Measurement of the in situ value of exhaustible resources: An input distance function," Ecological Economics, Elsevier, vol. 62(3-4), pages 490-495, May.
    14. Lee, Myunghun, 2013. "The effects of an increase in power rate on energy demand and output price in Korean manufacturing sectors," Energy Policy, Elsevier, vol. 63(C), pages 1217-1223.
    15. L. Marsiliani & X. Liu & Л. Марсилиани & К. Лю, 2017. "Структура Акционерного Капитала И Степень Эксплуатации Нефтяных Месторождений // Share-Ownership Distribution And Extraction Rate Of Petroleum In Oil Fields," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 5(1), pages 42-53.
    16. Deng, Zhongqi & Chen, Yongjun, 2016. "Markups and Firm-Level Export Status: Comment," MPRA Paper 74494, University Library of Munich, Germany.
    17. Myunghun Lee, 2019. "Allocative efficiency, potential cost savings, and power supply price markdown in Korean electric power sector," Energy & Environment, , vol. 30(4), pages 617-628, June.
    18. Hart, Rob, 2012. "The economics of natural resources: Understanding and predicting the evolution of supply and demand," Working Paper Series 2012:01, Swedish University of Agricultural Sciences, Department Economics.
    19. Hart, Rob & Gars, Johan, 2022. "The black paradox," European Economic Review, Elsevier, vol. 148(C).
    20. Margaret E. Slade & Henry Thille, 2009. "Whither Hotelling: Tests of the Theory of Exhaustible Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 239-259, September.
    21. Wang, Qiao & Balvers, Ronald, 2021. "Determinants and predictability of commodity producer returns," Journal of Banking & Finance, Elsevier, vol. 133(C).

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