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Dominant Firm Pricing Policy in a Market for an Exhaustible Resource

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  • Richard J. Gilbert

Abstract

The paper describes a von Stackelberg model of pricing behavior by a dominant firm in a market for an exhaustible resource. The results obtained differ dramatically from those that characterize a pure monopoly. If the marginal production cost in the competitive fringe is constant, the optimal dominant firm price strategy is independent of its own costs and is determined by the characteristics of the fringe. In contrast, if the production cost of the fringe is constant only up to a capacity constraint, the cartel may maximize profits by acting as a classical limit-pricing firm.

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Bibliographic Info

Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 9 (1978)
Issue (Month): 2 (Autumn)
Pages: 385-395

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Handle: RePEc:rje:bellje:v:9:y:1978:i:autumn:p:385-395

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Cited by:
  1. Benchekroun, Hassan & Gaudet, Gerard & Van Long, Ngo, 2006. "Temporary natural resource cartels," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 663-674, November.
  2. Margaret E. Slade & Henry Thille, 2009. "Whither Hotelling: Tests of the Theory of Exhaustible Resources," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 239-259, 09.
  3. Hassan Benchekroun & Cees Withagen, 2008. "Nonrenewable Resource Oligopolies And The Cartel-Fringe Game," Departmental Working Papers 2008-02, McGill University, Department of Economics.
  4. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
  5. Groot, A.M. & Withagen, C.A.A.M. & Zeeuw, A.J. de, 1996. "Strong Time-Consistency in the Cartel-versus-Fringe Model," Discussion Paper 1996-22, Tilburg University, Center for Economic Research.
  6. Labys, Walter C., 1988. "Recent developments in commodity modeling : a World Bankfocus," Policy Research Working Paper Series 119, The World Bank.
  7. Sweeney, James L., 1993. "Economic theory of depletable resources: An introduction," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 17, pages 759-854 Elsevier.
  8. Giraud, Pierre-Noël & Nappi, Carmine, 1994. "L’économie minière ou pétrolière : deux familles résident sous le même toit," L'Actualité Economique, Société Canadienne de Science Economique, vol. 70(4), pages 477-497, décembre.
  9. Devarajan, Shantayanan & Fisher, Anthony C, 1981. "Hotelling's "Economics of Exhaustible Resources": Fifty Years Later," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 65-73, March.
  10. BENCHEKROUN, Hassan & WITHAGEN, Cees, 2010. "On Price Taking Behavior in a Nonrenewable Resource Cartel-Fringe Game," Cahiers de recherche 11-2010, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  11. Bandyopadhyay, Kaushik Ranjan, 2009. "Does OPEC act as a Residual Producer?," MPRA Paper 25841, University Library of Munich, Germany, revised 2010.
  12. Boyce, John R. & Vojtassak, Lucia, 2008. "An 'oil'igopoly theory of exploration," Resource and Energy Economics, Elsevier, vol. 30(3), pages 428-454, August.

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