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Temporary Natural Resource Cartels

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  • BENCHEKROUN, Hassan
  • GAUDET, Gérard
  • LONG, Ngo Van

Abstract

We analyze the behavior of a nonrenewable resource cartel that anticipates being forced, at some date in the future, to break-up into an oligopolistic market in which its members will then have to compete as rivals. Under reasonable assumptions about the value function of the individual firms in the oligopolistic equilibrium that follows the break-up, we show that the cartel will then produce more over the same interval of time than it would if there were no threat of dissolution, and that its rate of extraction is a decreasing function of the cartel's life; that there are circumstances under which the cartel will attach a negative marginal value to the resource stocks, in which case the rate of depletion will be increasing over time during the cartel phase; that, for a given date of dissolution, the equilibrium stocks allocated to the post-cartel phase will increase as a function of the total initial stocks, whereas those allocated to the cartel phase will increase at first, but begin decreasing beyond some level of the total initial stocks.

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Bibliographic Info

Paper provided by Universite de Montreal, Departement de sciences economiques in its series Cahiers de recherche with number 2004-02.

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Length: 18 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:mtl:montde:2004-02

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Keywords: Cartels; dissolution; nonrenewable natural resources;

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References

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  1. Pindyck, Robert S, 1979. "The Cartelization of World Commodity Markets," American Economic Review, American Economic Association, vol. 69(2), pages 154-58, May.
  2. Teece, David J. & Sunding, David & Mosakowski, Elaine, 1993. "Natural resource cartels," 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 24, pages 1131-1166 Elsevier.
  3. Newbery, David M G, 1981. "Oil Prices, Cartels, and the Problem of Dynamic Inconsistency," Economic Journal, Royal Economic Society, vol. 91(363), pages 617-46, September.
  4. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  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. Stiglitz, Joseph E. & Dasgupta, Partha, 1982. "Market structure and resource depletion: A contribution to the theory of intertemporal monopolistic competition," Journal of Economic Theory, Elsevier, vol. 28(1), pages 128-164, October.
  7. Robert S. Pindyck, 1977. "Cartel Pricing and the Structure of the World Bauxite Market," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 343-360, Autumn.
  8. Evenett, Simon J. & Levenstein, Margaret C. & Suslow, Valerie Y., 2001. "International cartel enforcement : lessons from the 1990s," Policy Research Working Paper Series 2680, The World Bank.
  9. Valerie Y. Suslow, 2005. "Cartel contract duration: empirical evidence from inter-war international cartels," Industrial and Corporate Change, Oxford University Press, vol. 14(5), pages 705-744, October.
  10. Richard J. Gilbert, 1978. "Dominant Firm Pricing Policy in a Market for an Exhaustible Resource," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 385-395, Autumn.
  11. A. M. Ulph & G. M. Folie, 1980. "Exhaustible Resources and Cartels: An Intertemporal Nash-Cournot Model," Canadian Journal of Economics, Canadian Economics Association, vol. 13(4), pages 645-58, November.
  12. repec:aea:jeclit:v:44:y:2006:i:1:p:43-95 is not listed on IDEAS
  13. Groot, F. & Withagen, C.A.A.M. & Zeeuw, A.J. de, 1992. "Note on the open-loop von Stackelberg equilibrium in the cartel versus fringe model," Open Access publications from Tilburg University urn:nbn:nl:ui:12-377500, Tilburg University.
  14. Pindyck, Robert S, 1978. "Gains to Producers from the Cartelization of Exhaustible Resources," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 238-51, May.
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Citations

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Cited by:
  1. Wirl, Franz, 2008. "Resource extraction by cartels facing constraints on cooperation," Resource and Energy Economics, Elsevier, vol. 30(3), pages 409-427, August.
  2. Frederick van der Ploeg, 2012. "Breakthrough Renewables and the Green Paradox," OxCarre Working Papers 091, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  3. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
  4. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," International Review of Economics, Springer, vol. 1(1), pages 115-148, March.
  5. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  6. 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.
  7. 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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