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Cartel Deception in Nonrenewable Resource Markets

  • Tracy R. Lewis
  • Richard Schmalensee

Salant's (1976) model of cartelized resource markets with competitive fringe producers predicts an evolution of prices that lies between the Hotelling predictions for monopoly and competition. The price trajectory Salant derives is the best the cartel can enforce against competitive behavior. Suppose cartel output cannot be observed and futures contracts do not commit all reserves available. If other sellers expect price to follow the Salant path, the cartel can exploit those expectations by covertly producing either more or less than its Salant equilibrium output. Thus the Salant price trajectory is not a plausible equilibrium when cartel output is unobservable, and the use of Salant-type models to analyze real markets may be misleading.

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

Volume (Year): 13 (1982)
Issue (Month): 1 (Spring)
Pages: 263-271

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Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:263-271
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