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Monopoly Extraction of an Exhaustible Resource with Two Markets

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Author Info
Fischer, Carolyn () (Resources for the Future)
Laxminarayan, Ramanan () (Resources for the Future)

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Abstract

Although much has been written about the implications of monopoly power for the rate of extraction of natural resources, the specific case in which the resource can be sold in two markets with different elasticities of demand has escaped notice. We find that a monopolist facing two markets with differing iso-elastic demand schedules extracts more rapidly than the social planner, whether or not arbitrage prevents price discrimination between markets. This analysis is relevant in the case of many resources — such as natural gas used for power generation and household heating, or petroleum used for making plastics and as fuel.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-04-08.

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Date of creation: 31 Jan 2004
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Handle: RePEc:rff:dpaper:dp-04-08

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Related research
Keywords: exhaustible resources; monopoly; markets; price discrimination;

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Find related papers by JEL classification:
D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation

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  1. Eswaran, Mukesh & Lewis, Tracy R., 1984. "Ultimate recovery of an exhaustible resource under different market structures," Journal of Environmental Economics and Management, Elsevier, vol. 11(1), pages 55-69, March. [Downloadable!] (restricted)
  2. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-61, September. [Downloadable!] (restricted)
  3. Gaudet, Gerard & Lasserre, Pierre, 1988. "On comparing monopoly and competition in exhaustible resource exploitation," Journal of Environmental Economics and Management, Elsevier, vol. 15(4), pages 412-418, December. [Downloadable!] (restricted)
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  4. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
  5. Lewis, Tracy R., 1976. "Monopoly exploitation of an exhaustible resource," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 198-204, October. [Downloadable!] (restricted)
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