A lithium cartel is being considered by Argentina, Chile, Bolivia and Brazil as electric vehicle (EV) market grows and with it the demand for mined lithium to turn into batteries. Bolivia, Chile and Argentina share part of the region which is rich in lithium reserves – known as the lithium triangle. Although Brazil is still establishing its extraction process, they do have experience in car manufacturing with low carbon emissions with the use of ethanol, biofuels and natural gas. With the opening of its Grota do Cirilo lithium mine in April, Brazil will have one of the few companies globally that has proven its ability to produce lithium in an environmentally sustainable manner.
Argentina is expected to produce 16% by 2030 that is up from 6% in 2021. They would overtake Chile as the No. 2 lithium producer in the world by 2027, behind only Australia.
A cartel could mean a higher cost for lithium which would then be passed onto EV buyers which could reduce the demand for EV cars. But a higher price could encourage a cheaper substitute material sodium-ion batteries for the EV market. However the cartel would most likely increase supply with a commitment from member governments. Below is a short video from the FT on the future of the lithium supply chain and how China controls about 60 per cent of global lithium processing. There is also mention of Latin American countries and their contribution to the global supply.
A2 Level Economics – Cartel notes.
A cartel operates in the Oligopoly market. It is a mistake to believe that ALL oligopolists face a KINKED DEMAND CURVE. Oligopolists may either:
- a) COMPETE VIGOROUSLY or
- b) COLLUDE (e.g. in cartels) or
- c) PLAY SAFE (as in Kinked Demand Curve Theory)
Collusion in oligopoly
Where oligopolists agree formally or informally to limit competition between themselves they may set output quotas, fix prices, or limit product promotion or development. A formal collusive agreement is called a cartel. A cartel can achieve the same profits as if the industry were a monopoly. Covert (formal) collusion occurs where firms meet secretly and make decisions about prices or output. Tacit (informal) collusion is much more difficult to control. This is when firms act as if they have agreements in place without actually having communicated with each other.
Collusion between firms whether formal or informal is more likely when:
- there are only a few firms in the industry, so reaching an agreement is easier and any cheating can be spotted quickly.
- they have similar costs of production and methods of production making any agreement on price easier to reach.
- the firms produce similar products. Cartels have been common in industries such as cement production in recent years.
- the products have price inelastic demand meaning that a rise in price by the cartel will lead to a rise in sales revenue for the firms.
- the laws against collusion in a country are weak or ineffective.
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