Game Analysis Of Iron Ore Price Negotiation

In recent years, China suffered repeatedly setbacks in the international iron ore price negotiations. The intense price fluctuation of the iron cast serious impact on related Chinese economies. In inquiry of the decisive part in the price talk, one should start with the factors which affect the iron ore price. Then extract the point that is crucial to the negotiations. Based on game theory, bargaining model in both complete and incomplete information condition are established and the corresponding benchmark price in either condition is derived, which support the economic explanations of iron price negotiation.The analysis shows that the benchmark price is affected by various elements, such as domestic iron ore production, the amount of imported iron ore, shipping price, trend of benchmark current which is US dollar, and economic situation in terms of interest. In the price talk, the increase of domestic production and imported amount, appreciation of the dollar reinforced the iron ore buyer’s bargaining power and therefore the price moved as the buyer’s expected. Meanwhile, the rise of the shipping cost and the interest of the exporting countries strengthen the seller’s bargaining power. Besides, the information asymmetry higher the general cost the negotiation. In turn, this situation benefits the participant hiding information. Therefore, to reach a favorable price, it is very important to gather opponent’s bottom price before hands and keep one’s own price uncovered.By the theoretical investigation, some measures should be taken:strengthen the industrial concentration, develop its own shipping, Give up the third-party exchange, strengthening of information management. These methods can increase the weight of the iron and steel enterprises in the international negotiating table, which makes the price close to our expectations.On the basis of the previous definition of bargaining power, combined with the reality factors affect the price of iron ore, this paper transform the functional form of the bargaining power. Game analysis, further refinement of the bargaining power of the factors, the conclusion is more close to reality, provide more specific and detailed policy recommendations for the negotiations.