Competition Between Primary and Secondary Industries
--Rep. Yates: There is no question that the fabricating part of your business is the part that makes money.
-- Richard Reynolds: And it takes less investment.
THE VERY ACT of regarding the interaction of virgin and scrap material flows from the perspective of industry structure and competition raises basic questions about pricing. Do virgin material industries use their potential monopolistic power to act as conservationists, restricting output as they raise prices? Or do virgin material firms behave like managerial capitalists, reaching out for the growth of "their material" through low prices? As we shall see, it is difficult to observe the actual prices of materials let alone understand the underlying pricing behavior. While much remains uncertain about industry behavior, it is possible, nonetheless, to make explicit some of the economic conditions underlying the competition of scrap and virgin material. Analyzed in terms of perfect and imperfect substitutes, case studies by Sawyer and by Russell and Vaughan suggest that long-run impacts from changes in cost or policy interventions can be large.
The purpose of this introductory look at the complicated pattern of material industries' interaction and competition is to set the stage for later discussion of market inefficiencies, or market failures, and policy