From the perspective of the nature of monopoly, why are iron ore prices prone to rising but resistant to falling?
2016-12-12
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With the recent rapid surge in iron ore prices, mining giant Rio Tinto has introduced a new strategy: for its Pilbara Blend (hereafter referred to as PB fines) exported to China,
On the basis of Platts pricing, a premium ranging from several tens of cents to one U.S. dollar per ton is added to arrive at the long-term contract price. As the world’s largest importer of iron ore, China accounts for 70% of global imports; yet, when confronted with the frequent changes in the rules of the game imposed by the major players, it appears to have few effective responses beyond voicing protests.
Iron ore prices (left: RMB/ton, right: USD/ton), Choice
China’s iron ore production and imports (in tonnes), Choice
Iron Ore Port Inventories (10,000 tons), Choice
Such conduct—offering products of the same grade and quality, with identical production costs, to different buyers while charging them different sales prices or fee rates—constitutes a typical case of…
Price discrimination. Price‑discriminatory practices are widespread across many industries and are often lawful; for example, in telecommunications, e‑commerce, and the airline sector, identical goods or services are frequently offered at different prices to different consumers. Price discrimination is a…
Monopoly pricing is a pricing strategy whereby firms in a monopolistic position seek to capture excess profits through price discrimination. Common methods of price discrimination include offering coupons (to segment consumers), charging dual prices, and implementing bundled sales. The ability to engage in price discrimination typically indicates that a firm already enjoys a certain degree of market power or monopoly status.
Practices such as Rio Tinto’s differential pricing for Chinese and Japanese–Korean steelmakers amount to a blatant extraction of profits from steel mills and their downstream customers. At present, BHP, Rio Tinto, and… Brazil The three major players in Vale account for more than 70% of global iron ore supply, making the oligopolistic market structure unmistakable.
Compared with typical competitive industries, what are the fundamental differences of monopoly industries?
The essence of monopoly is the artificial reduction of supply, the raising of market prices, and the extraction of excess profits.
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