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Chapter 3 Competition and cooperation in oligopoly markets. Case study synthetic rubber cartels. The history of synthetic rubber.
Case study synthetic rubber cartels
The first rubber tyres were produced in 1791. Around 1820 Thomas Hancock invented the ‘pickling machine’, that masticated rubber and turned it into a warm, homogenous mass. The big breakthrough in the use of rubber for tyres came in 1839 when Charles Goodyear invented vulcanised rubber.
The demand for rubber increased rapidly. During the 19th century Brazil held the monopoly on natural rubber. However, with the legal export of seeds of the rubber tree (Hevea brasiliensis) to England, later to Ceylon (Sri Lanka) and Malacca, the production of natural rubber in South East Asia soon exceeded the Brazilian production.
Synthetic rubber was already invented around 1910 but it took until WWII before it was produced on a larger scale. The supply of natural rubber from South East Asia was halted due to the Japanese occupation of South East Asia.
Japan had been feeding their war machine since 1931 (Japanese occupation of South East Asia) and desperately needed rubber.
The plan was simple: send an army and occupy all rubber plantations. The Japanese attack on Pearl Harbour (7 December 1941) cut off nearly all of the US sources of natural rubber, the only natural resource the US does not have. A day later the Malayan peninsula was invaded, securing Japanese access to vast rubber reserves and more enemies than it could cope with.
After WWII, the production and supply of natural rubber was quickly restored. Due to the increasing price and demand, by the 1960s the production of synthetic rubber soon surpassed that of natural rubber. The demand for rubber increased even further; in the 1970s following the strong growth in the car industry and in the 1980s due to the increasing demand for condoms as a result of the worldwide AIDS epidemic (most condoms contain natural rubber).
Styrene Butadiene Rubber (SBR) and Butadiene Rubber (BR) are the most widely consumed types of synthetic rubbers. Butadiene rubber is fully substitutable by natural rubber (NR) regarding its use in tyres. Emulsion Styrene Butadiene Rubber (ESBR) and BR are both used for tyres, whereas Solution Styrene Butadiene Rubber (SSBR) is used for asphalt applications.
Figure 1 : global SBR applications
Based on a presentation during Rubber Summit, Ontario, 2008