The Research On The Price Mechanism Of Iron Ore Market

In recent years, China failed the international negotiation on iron ore importing price, the importing and domestic iron ore prices skyrocket in China, and the national economy is severely influenced. As regards to the economic phenomenon, many scholars have tried to give analysis and Countermeasures, but their articles have insufficient explanation capabilities because of the lack of theretical basis. The author asserts that there must be special price theory innovated to explain the phenomenon relating to the iron ore price since the price mechanism of iron ore market is highly complicated, in which various pricing formation methods exist and they react to each other.By combing the contract theory and multiple price theory, the author interprets the price formation of iron ore from the perspective of contractual arrangement. The author creats the contractual spectrum of iron ore market, and formulates the conceptual model in which the iron ore market reaches equilibrium resulting from the players' choosing the contractual arrangement from the spectrum. Based on this model, the author deeply formulates the internal mechanism of different basic pricing methods and their inter relationships, so as to provide theoretical basis for explaining the phenomenons relating to iron ore prices.Chapter 2 reviews the relative basic theories, namely, multiple prices theory, contract theory and the price theory related to each basic kind of price formation (internal transfer price, long-term contract price and spot price). Furthermore, based on the similarity of the research objective, the chapter also briefly reviews the research on iron ore market by domestic and foreign scholars. In this chapter, the author analyzes the current theories' advantages to be used and weaknesses to be improved.Chapter 3 founds the basic rules of price mechanism of iron ore market. The author asserts that all the contractual arrangements in the iron ore market can be connected into a continous and incrementally chaning spectrum, which makes the contractual arrangement a continuous variable. Form the left end to the right end, the commitement between the sellers and the buyers is becoming looser and the price rigidity is becoming lighter. Because the players' profit is a function of the contractual arrangement and external environment, the player will bargain with the rival in order to reach the contractual arrangement closest to the optimized one which maximize its profit. Since contractual arrangement is synonym for price formation method, the equilibrium price, quantity, transaction cast and all other profit related variables are determined at the same time when the contractual arrangement is determined, and hence the whole market reach the equilibrium. Accoring to the substantial difference in price formation, the author divides the spectrum into three intervals, namely the interval of vertical integration, long term contract and spot transaction, respectively.Based on the rules above, the author analyzes the internal mechanism of the three basic pricing methods and their inter relationships in chapter 4, 5 and 6 respectively. Chapter 4 formalutes price formation of different incentive system along the contractual spectrum within the vertical integration interval based on existed internal pricing theories, and impacts of equity holding struacture. Chapter 5 formulates price formation in the long-term contract interval using the bargaining theory, and analyzes impacts on the equilibrium negotiated price form outside options, discount rates, industrial concentration and strategic behaviours, etc., which can explain why China always fails the international iron ore negotiation. Chapter 6 formulates the price formation of spot market based on traditional micro economics theories, and focues on the impact of import credentialing and selling restriction, which can explain the alternative rising of long-term contract price and spot price.Chapter 7 is empirical research. Based on what has been got from chapter 3 to 6, the author explains the focal phenomenons including the changing trend of mainstream contractual arrangements in the iron ore market and the skyrocketing price of the importing and domestic iron ore price in China.Compared to other literatures in this field, the author establishes a microscopic price theory which is much closer to the reality, and the similarity between the iron ore market and other primary product markets, the dissertation has much wider applicability. Furthermore, the author realizes theoretical innovation by combining the contract theory and the multiple price theory.