The IBA and cartel problems : Prices, policy objectives and elasticities

The bauxite-aluminium industry structure is reviewed to illustrate the character of the threat posed by the formation of the International Bauxite Association (IBA). Bauxite price is a transfer price internal to vertically integrated firms, but Caribbean governments' fiscal revenue needs provoked a consistent tendency towards price increases. Australia is not interested in this or in a bauxite cartel, but rather in developing smelting capacity, exploiting its energy resources, and the elimination of barriers to Australian aluminium imports. Some elasticity estimates previously presented for demand and supply, together with their estimation method and policy implications, are strongly criticized.