Alcoa: The Influence of Recycling on Monopoly Power

Abstract

Puzzle 1: Was Judge Hand correct in his celebrated judicial opinion that Alcoa's monopoly in "virgin" aluminum provided indirect control over "secondary" production? Answer: Estimates based on three models suggest that the "procompetitive" effect of recycling was largely offset by a reduction in virgin production in anticipation of future conversion into secondary. Thus, Hand's judgment appears sound. Puzzle 2: Is it in Alcoa's own interests to suppress recycling of scrap aluminum if feasible? Answer: If current users show that they value the future use of the product by selling scrap to merchants, then Alcoa is likely to value the recycling market also. If users discard scrap which is subsequently scavenged, then Alcoa is likely to be harmed by such activity.