Market Coordination by the Uranium Oxide Industry

• Published date: 01 March 1980
• Date: 01 March 1980
• Author: Geoffrey Rothwell
• DOI: 10.1177/0003603X8002500108
• Subject Matter: Article

The Antitrust Bulletin/Spring 1980

Market coordination by the uranium

oxide industry

BY GEOFFREY ROTHWELL*

233

By 1970t he United States Atomic Energy Commission (AEC)

had

ended its price guarantee program for domestically produced ura-

nium oxide (U30 8) , or "yellowcake." Given that the AEC had been

the sole purchaser in the U.S. market until the late 1960's, the price

remained constant at approximately $8 per pound from 1962-1968.

Private purchase contracts, begun in 1966, were negotiated through

the end

of

1973at prices averaging under $7 for immediate delivery.

But during the next three years, the spot market price rose to $41,

and has remained in the mid-$40 range since that time. IThese rapid

increases had led to several investigations

of

the possible collusive

aspects of the uranium mining and milling industry, and prompts

the present article.

The international yellowcake market may be classified by at

least two broadly defined submarkets. Although the United States

dominates

uranium production through its possession

of

a

*Department of Economics, University of California at Berkeley.

IAlthough the spot price is in the mid-$40 range, the average price

is much lower due to earlier fixed-price contracting. See U.S. Depart-

ment of Energy, Survey

of

United States Uranium Marketing Activity,

DOE/RA-0006 (Washington, D.C.: U.S. Department of Energy, May

1978), pp. 9-15.

c1980 by Federal Legal Publications. Inc.

234 : The antitrust bulletin

significant portion

of

the world's estimated low-cost reserves

and one of the oldest uranium industries, other important pro-

ducer countries include Australia, Canada, France, Gabon,

Nambia, Niger, and South Africa. Because

of

restrictions placed

on the origin

of

uranium to be enriched at U.S. federal plants

for domestic consumption, the importation

of

U

30S

was effec-

tively blocked during the period mentioned above, and will only

experience complete deregulation in the mid-1980's. Thus, one

might discuss two submarkets in existence during the 1970's in

the non-Socialist world: the U.S. and all other nations.'

As early as 1972, reports appeared in the international press

that the governments

of

Australia, Canada, France, and South

Africa were meeting to agree to a uniform approach to the

world uranium market. 3Although some industry participants

were aware

of

decisions made at these discussions, the extent of

these meetings was not generally realized until the release of

what became known as the

"Mary

Kathleen Papers" (after a

major Australian producer) in the summer of 1976. A few

months later, Westinghouse, who had in September 1975,

announced that it would not honor many of its uranium supply

contracts, filed a treble-damage suit against most

of

the leading

U.S. uranium producers

and

over a dozen international

uranium suppliers. During the following year, the TVA also

filed a similar suit against some of the same firms. These cases

may become some of the most complicated in the history of

U.S. antitrust litigation.

This article provides an analysis of the economics and events

leading up to the pending antitrust action in the mining and

2In their study of recent mergers in the coal and uranium indus-

tries, the TVA defined uranium as a relevant product market and as

constituting anational geographic market. See Herbert S. Sanger, Jr.

and William E. Mason, The Structure

of

the Energy Markets: A

Report

of

TVA's Antitrust Investigation

of

the Coal and Uranium

Industries (Tennessee Valley Authority, June 14, 1977), pp.

51

and 68.

3See, for example, "Uranium Market Discussed by Four Producer

Nations," Wall Street Journal, February 8, 1972, p. 8.

Uranium oxide industry :235

milling

of

uranium. First, the yellowcake market will be dis-

cussed using some

of

the traditional criteria deemed necessary

for the successful short-run operation

of

acartel. Next, the

formulation

of

collusive agreements among those countries men-

tioned

above

and

the

transnational

corporations

operating

within them will be explored. Lastly, the collusion which may

have taken place among the

top

U.S. producers will be ex-

amined as it relates to the treble-damage suits.

One point should be stressed at the outset. Many

of

the

conclusions

regarding

the

collusive

activities

of

both

international and domestic producers

are

speculative. Pertinent

information is protected from public scrutiny behind obstacles

imposed by

non-cooperating

governments

and

the

rights

accorded to the holders

of

propietary knowledge. Hence, only a

tentative evaluation can be reached in this study.

Characteristics

of

the international yellowcake market

There exists a consensus among neoclassical economists that

certain characteristics

of

amarket enhance the possibility

of

a

cartel's formation

and

maintenance." Concerning the initial con-

struction

of

acartel, these factors include product homogeneity,

demand

and

supply elasticity, the separation

of

producers from

consumers, the degree

of

vertical integration among producers,

and

the number

of

the latter. To maintain such an arrangement,

allocated market shares should approximate

"competitive"

shares, similar supply elasticities should exist among producers

with no tendencies toward

"natural

monopoly,"

and competi-

tion should be strong among consumers. Each

of

these will be

examined as it relates

to

the

international

uranium

oxide

market.

4For a review of the literature discussing this subject, see George

A. Hay and Daniel Kelley,

"An

Empirical Survey of Price Fixing

Conspiracies," Journal

of

Law

and Economics, April 1974, pp.

13-17.