Why World Oil Monopolization Lowers Oil Prices: A Theory of Involuntary Cartelization
This paper first shows that, in the absence of long-term production commitments, time-consistent monopolistic sellers of a wasting natural resource will underconserve their resource. Since the present values of the profits of these uncommitted monopolists are generally much lower than under competition, the only rational explanation for the persistent recurrence of such monopolies in the oil industry is the high profits to current generations of oil buyers, who unite to establish such a producer monopoly. The victims of such a monopolistic cartel, besides future generations of consumers, are the producers who must involuntarily expand their current productive capacities in order to benefit the cartel leaders, who stand to benefit from the higher future prices. OPEC, rather than being a monopolistic cartel, is an excess-capacity cartel, one that has been induced by current generations of buyers to supply sufficient excess capacity to efficiently accommodate their prospective future emergencies.
Volume (Year): 7 (2000)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CIJB20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CIJB20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thompson, Earl A., 1980. "Characteristics of worlds with perfect strategic communication," Journal of Economic Theory, Elsevier, vol. 23(1), pages 111-119, August.
- Malueg, David A & Solow, John L, 1990. "Monopoly Production of Durable Exhaustible Resources," Economica, London School of Economics and Political Science, vol. 57(225), pages 29-47, February.
- 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.
- Thompson, Earl A, 1981. "Who Should Control the Money Supply?," American Economic Review, American Economic Association, vol. 71(2), pages 356-61, May.
- 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.
- Thompson, Earl A, 1974. "Taxation and National Defense," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 755-82, July/Aug..
- Thompson, Earl A & Faith, Roger L, 1981. "A Pure Theory of Strategic Behavior and Social Institutions," American Economic Review, American Economic Association, vol. 71(3), pages 366-80, June.
When requesting a correction, please mention this item's handle: RePEc:taf:ijecbs:v:7:y:2000:i:1:p:63-78. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.