Rare earth elements (REEs) are important forvarious consumer electronics such as smartphones, CD and DVD players. More importantly, REEs are essential forthe exit from fossilenergy and the transition towards a low-carbon economywith applications ranging from clean energy tech-nologies such as wind turbines, photovoltaic cells, and hybrid and electric vehicles.Chinais the number one provider of REEs to the rest of the world and thus has a quasi-monopoly.
Further-more, until the official abandonment of itsexport quota policy in January 2015, the Chinese Min-istry of Commerce (MOFCOM) heavily intervened in the REEs market using non-tariff barriers, export quotas in particular.One of the most prominent features of the REEs market is a dual pricing structure with much higher export (FOB, free on board) prices compared to domesticprices(inside China), thereby creating incentives for companies to shift production to China in order to benefit from this cost advantage and get access to REEs.
In order to assess whether MOFCOM has used the export quo-ta policy to strategically manipulate prices, we focus on the domestic-to-export price transmission mechanism and whether that changed afterthe end of the export quota scheme. Moreover, we control for potential price transmission asymmetries, so-called rockets-and-feathers behaviour with export prices immediately reacting to increases of domesticprices but only gradually adjust-ing to price decreases.
The results show thatshocks are absorbed muchquicker after the end of the export quota scheme. Besides, the magnitude of deviations from the equilibrium between export and domestic prices necessary to trigger price adjustments is much smaller. This indicates that export prices became more sensitiveto changes of domestic prices after MOFCOM ceased to regulate the market usingexport quotas.However, we do not find evidence for asymmetric price transmission of the rock-ets-and-feathers type.