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Monopoly Extraction under Performance Constraints

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  • Read, Peter
  • Ulph, Alistair

Abstract

Two simple forms of performance constraint--fixed price/output ("take or pay" contracting) and fixed exhaustion date--are analyzed as regards monopolist's behavior and host nation's welfare, assuming linear demand. An early exhaustion date can cause the monopolist to set a falling price. Welfare is improved under exhaustion-date constraint by shifting towards the competitive exhaustion date, with the optimum earlier still. But, with large resources, exhaustion-date constraint is inferior to "take or pay." The significance of institutional aspects is discussed and an appendix demonstrates limited generalization of the falling-price result. Copyright 1989 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Suggested Citation

  • Read, Peter & Ulph, Alistair, 1989. "Monopoly Extraction under Performance Constraints," Bulletin of Economic Research, Wiley Blackwell, vol. 41(2), pages 107-122, April.
    • Handle: RePEc:bla:buecrs:v:41:y:1989:i:2:p:107-22
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