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Cartel Deception in Nonrenewable Resource Markets

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  • Tracy R. Lewis
  • Richard Schmalensee

Abstract

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.

Suggested Citation

  • Tracy R. Lewis & Richard Schmalensee, 1982. "Cartel Deception in Nonrenewable Resource Markets," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 263-271, Spring.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:spring:p:263-271
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    Cited by:

    1. Karp, Larry & Tahvonen, Olli, 1995. "International Trade in Exhaustible Resources: A Cartel-Competitive Fringe Model," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9dt5614j, Department of Agricultural & Resource Economics, UC Berkeley.
    2. Abdul HANNAN* & Hasan M. MOHSIN**, 2015. "Regional Analysis of Resource Curse Hypothesis: Evidence from Panel Data," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 25(1), pages 45-66.
    3. Matti Liski & Juan‐Pablo Montero, 2011. "Market Power in an Exhaustible Resource Market: The Case of Storable Pollution Permits," Economic Journal, Royal Economic Society, vol. 121(551), pages 116-144, March.
    4. Giraud, Pierre-Noël & Nappi, Carmine, 1994. "L’économie minière ou pétrolière : deux familles résident sous le même toit," L'Actualité Economique, Société Canadienne de Science Economique, vol. 70(4), pages 477-497, décembre.

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