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Monopoly power can be disadvantageous in the extraction of a durable nonrenewable resource

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  • Karp, L.

Abstract

The authors study a Markov equilibrium for the case where a monopolist extracts a nonrenewable resource which is converted to a durable good, which then depreciates at a constant rate. They show that, in a stationary, continuous time model (infinite horizon, infinitesimal period of commitment), monopoly power can be disadvantageous. Numerical experiments confirm that this can also occur in a finite horizon, discrete model. This result is compared with previous examples of disadvantageous market power, obtained using two-period models. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Paper provided by Economics Division, School of Social Sciences, University of Southampton in its series Discussion Paper Series In Economics And Econometrics with number 9209.

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Date of creation: 01 Jan 1992
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Handle: RePEc:stn:sotoec:9209

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References

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  1. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  2. Levhari, David & Pindyck, Robert S, 1981. "The Pricing of Durable Exhaustible Resources," The Quarterly Journal of Economics, MIT Press, vol. 96(3), pages 365-77, August.
  3. Gul, Faruk & Sonnenschein, Hugo & Wilson, Robert, 1986. "Foundations of dynamic monopoly and the coase conjecture," Journal of Economic Theory, Elsevier, vol. 39(1), pages 155-190, June.
  4. Gatsios, Konstantine & Karp, Larry S., 1989. "The Welfare Effects of Imperfect Harmonization of Trade and Industrial Policy," Working Papers 51256, International Agricultural Trade Research Consortium.
  5. Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 136-161, October.
  6. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April.
  7. Faruk Gul, 1987. "Noncooperative Collusion in Durable Goods Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 248-254, Summer.
  8. Chilton, John, 1984. "The Pricing of Durable Exhaustible Resources: Comment," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 629-37, August.
  9. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  10. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  11. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  12. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
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Cited by:
  1. Gregory Goering & Michael Pippenger, 2002. "Durable Goods Monopoly and Forward Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(2), pages 271-282.
  2. Karp, Larry S. & Theirry, Paul, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," CUDARE Working Paper Series 893R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  3. Robert A. Driskill, 2002. "A Proposal for a Selection Criterion in a Class of Dynamic Rational Expectations Models with Multiple Equilibria," Vanderbilt University Department of Economics Working Papers 0210, Vanderbilt University Department of Economics.
  4. Timothy Swanson & Ben Groom, 2012. "Regulating Biodiversity: What is the Problem?," CIES Research Paper series 08-2012, Centre for International Environmental Studies, The Graduate Institute.
  5. Driskill, Robert, 2006. "Multiple equilibria in dynamic rational expectations models: A critical review," European Economic Review, Elsevier, vol. 50(1), pages 171-210, January.
  6. Luca Bossi & Vladimir Petkov, 2007. "Habits, Market Power, and Policy Selection," Working Papers 0702, University of Miami, Department of Economics.
  7. Driskill, Robert, 2001. "Durable goods oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 391-413, March.

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