two dogs don’t produce a pony

Consolidation seems to be the flavor of the day, especially in the South African charge chrome industry. As smelters go bust or nearly bust, two larger players have emerged, Glencore and Samancor. No surprises here that the concentration has some people worried. However, I definitely see no reason to predict that the promise land of higher prices will be achieved.

First, consolidation to me means destruction or combination. As I told my students, at least those who listened, that combining two dogs only created a larger dog, not a pony. Sure, the combination achieved some cost savings, but that only means they can continue to sell for less. The same amount will be produced going to the same market.

Instead, destruction, i.e., taking a one dog and putting it to sleep, not in a kennel. If you reduce output, that only means that unused capacity will overhang the market until the first whiff of higher prices.

And, even if higher prices are achieved, that only means that more competitors, not necessary from South Africa, will emerge.

PS my apologies to all dog owners.

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