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Monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition

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  • Wang, Min
  • Zhao, Jinhua

Abstract

This paper studies monopoly extraction of a nonrenewable resource with the presence of a competitively supplied capacity constrained renewable substitute. The monopolist staves off the renewable supply when the latter becomes competitive and then lets the resource price jump up.

Suggested Citation

  • Wang, Min & Zhao, Jinhua, 2013. "Monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition," Economics Letters, Elsevier, vol. 120(3), pages 503-508.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:503-508
    DOI: 10.1016/j.econlet.2013.06.013
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    References listed on IDEAS

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    1. Hoel, Michael, 1983. "Monopoly resource extractions under the presence of predetermined substitute production," Journal of Economic Theory, Elsevier, vol. 30(1), pages 201-212, June.
    2. Hartwick, John M, 1978. "Exploitation of Many Deposits of an Exhaustible Resource," Econometrica, Econometric Society, vol. 46(1), pages 201-217, January.
    3. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, vol. 98(3), pages 1128-1144, June.
    4. Groot, Fons & Withagen, Cees & de Zeeuw, Aart, 2003. "Strong time-consistency in the cartel-versus-fringe model," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 287-306, November.
    5. Partha Dasgupta & Richard J. Gilbert & Joseph E. Stiglitz, 1982. "Invention and Innovation Under Alternative Market Structures: The Case of Natural Resources," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 567-582.
    6. Gaudet, Gerard & Moreaux, Michel & Salant, Stephen W., 2002. "Private Storage of Common Property," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 280-302, March.
    7. Chakravorty, Ujjayant & Magne, Bertrand & Moreaux, Michel, 2006. "A Hotelling model with a ceiling on the stock of pollution," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2875-2904, December.
    8. Groot, Fons & Withagen, Cees & de Zeeuw, Aart, 1992. "Note on the Open-Loop von Stackelberg Equilibrium in the Cartel versus Fringe Model," Economic Journal, Royal Economic Society, vol. 102(415), pages 1478-1484, November.
    9. Dasgupta, Partha & Gilbert, Richard & Stiglitz, Joseph, 1983. "Strategic Considerations in Invention and Innovation: The Case of Natural Resources," Econometrica, Econometric Society, vol. 51(5), pages 1439-1448, September.
    10. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
    11. Holland, Stephen P., 2003. "Extraction capacity and the optimal order of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 569-588, May.
    12. Hoel, Michael, 1978. "Resource extraction, substitute production, and monopoly," Journal of Economic Theory, Elsevier, vol. 19(1), pages 28-37, October.
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    Cited by:

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    2. van der Meijden, Gerard & Withagen, Cees, 2019. "Limit pricing, climate policies, and imperfect substitution," Resource and Energy Economics, Elsevier, vol. 58(C).
    3. Renaud Coulomb & Oskar Lecuyer & Adrien Vogt-Schilb, 2019. "Optimal Transition from Coal to Gas and Renewable Power Under Capacity Constraints and Adjustment Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 73(2), pages 557-590, June.
    4. Wang, Min & Zhao, Jinhua, 2018. "Are renewable energy policies climate friendly? The role of capacity constraints and market power," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 41-60.
    5. Benchekroun, Hassan & van der Meijden, Gerard & Withagen, Cees, 2019. "An oligopoly-fringe non-renewable resource game in the presence of a renewable substitute," Journal of Economic Dynamics and Control, Elsevier, vol. 105(C), pages 1-20.
    6. van der Meijden, Gerard & Withagen, Cees, 2020. "Monopoly, unilateral climate policies and limit pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 120(C).
    7. Gerard Meijden & Frederick Ploeg & Cees Withagen, 2017. "Frontiers of Climate Change Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 1-14, September.
    8. Hart, Rob & Gars, Johan, 2022. "The black paradox," European Economic Review, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Resource extraction; Renewable substitute; Capacity constraint; Dynamic optimization;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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