Constrained markets

On identifying products with constrained markets and the marginal consumers that are affected by changes in demand on these markets.

A constrained market is a market where no suppliers are able to change their capacity in response to a change in demand, or where the suppliers response does not match the change in demand. In such a situation, the (remaining) change in demand will be met by a change in consumption by the marginal consumers of the product. Constrained markets can be found when the only supply to the market is from by-products (constrained by the demand for their determining products) or from suppliers that are constrained by resource availability or political regulations.

The marginal consumers are those that go out and in of the market as prices go up and down, typically the consumers that have the least alternative costs from not using the product in question, and which is therefore the most sensitive to changes in price.

The nature and extent of the changes in consumption can sometimes be supported by the availability of empirical data in the form of demand elasticities (the relative change in demand in response to a change in price) or cross-elasticities (the change in demand for other products in response to a change in price for the analysed product). The consequences of the identified demand changes must then be followed forward (downstream) in the lifecycle.

Treatment markets, i.e. market activities that operate on the services of treating or disposing of their determining products, can also be constrained, when all treatment options are constrained. This may lead to the need to a reduction in consumption of the waste treatment, which can typically only be achieved by reducing the production volume of one or more of the activities that generate the material for treatment. This would then typically be the activity with the least valuable output per unit of material for treatment.

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How to cite this: 
Consequential-LCA (2015). Constrained markets. Last updated: 2015-10-27. www.consequential-lca.org.