Economic incentive for output restrictions in the cobalt market

Abstract

The economic incentive to restrict supply in the cobalt market is analyzed. The economic framework for supply restriction and associated conditions for revenue maximization and profitability in a dominant firm price leadership market is presented. The major focus of the economic framework presented is the magnitude of net demand elasticity faced by a producer considering supply restriction. Elasticities of market demand and competitive supply and the market share of the producer considering supply restriction are derived as the components of net demand elasticity. The potential for total revenue and profit maximization by dominant firm supply restriction in the cobalt market is estimated for a range of net demand elasticities. Cobalt market demand price elasticity is derived from cobalt market demand estimates. Preceding the market demand and price elasticity estimatation is a review of factor demand and an analysis of cobalt market demand. Market share of the dominant producer in the cobalt market is estimated from historical data. A range of competitive supply elasticities that would result in increasing the dominant producer's total revenue and profit is derived.