Review of Industrial Organization 19: 71–79, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
The Magnesium Industry in Transition
MARVIN B. LIEBERMAN
The Anderson School at UCLA, Box 951481, Los Angeles, CA 90095-1481, U.S.A.
Abstract. Dow Chemical dominated the magnesium industry for decades but ultimately exited in
1998. This article considers the evolution of the industry and Dow’s decision to divest.
Key words: Capacity, dominant ﬁrm, exit, limit pricing, magnesium.
Few economists are familiar with the industrial history of magnesium, the lightest
metal in commercial use. For much of the twentieth century, the Dow Chemical
Company dominated world production of magnesium and maintained a position of
near-monopoly in the United States. To deter entry when commercial demand for
magnesium began to grow appreciably in the 1960s, Dow employed a remarkable
range of tactics, including announcements of excess capacity, limit pricing, and
sophisticated price discrimination.
Dow’s production efﬁciency, honed through
decades of experience, was widely recognized. Yet by the end of the century
Dow’s advantages had eroded, and signiﬁcant entry occurred in the U.S. and
especially abroad. Faced with growing import competition, falling prices, and a
storm-damaged plant, Dow exited the industry in November 1998.
This article describes the evolution of the magnesium industry and its current
It begins with background on magnesium’s uses and production methods,
and concludes with an assessment of Dow’s exit decision.
Initially used as a pyrotechnic material in bombs and ﬂares, magnesium now has
diverse applications. These include “structural” uses in aerospace, automotive, and
I thank Ken Corts and Deborah Kramer for helpful comments. This article gives interpretations
of Dow Chemical’s actions, and I retain full responsibility for errors.
These tactics are considered in detail in Lieberman (1983, 1998).
Extensive information on the magnesium industry can be obtained from the U.S. Geological
Survey web site. http://minerals.usgs.gov/minerals/pubs/commodity/magnesium/. Kenney (1979)
provides historical perspective.