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Monopoly Power can be Disadvantageous in the Extraction of a Durable Nonrenewable Resource

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  • Karp, Larry

Abstract

We 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. We show that in a stationary, continuous time model (infinite horizon, infinitesimal period of commitment) monopoly power can be disadvantageous. Numerical experiments c o n f i that this can also occur in a finite horizon, discrete model. This result is compared to previous examples of disadvantageous market power, obtained using two-period models.

Suggested Citation

  • Karp, Larry, 1995. "Monopoly Power can be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4cs0m1vb, Department of Agricultural & Resource Economics, UC Berkeley.
  • Handle: RePEc:cdl:agrebk:qt4cs0m1vb
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    References listed on IDEAS

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    1. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-332, April.
    2. 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.
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    8. 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.
    9. Gatsios, Konstantine & Karp, Larry, 1992. "The Welfare Effects of Imperfect Harmonisation of Trade and Industrial Policy," Economic Journal, Royal Economic Society, vol. 102(410), pages 107-116, January.
    10. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
    11. Patrick J. Kehoe, 1989. "Policy Cooperation Among Benevolent Governments May Be Undesirable," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 289-296.
    12. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
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    Cited by:

    1. Marín-Solano, Jesús, 2015. "Group inefficiency in a common property resource game with asymmetric players," Economics Letters, Elsevier, vol. 136(C), pages 214-217.
    2. Driskill, Robert, 2006. "Multiple equilibria in dynamic rational expectations models: A critical review," European Economic Review, Elsevier, vol. 50(1), pages 171-210, January.
    3. Laussel, Didier & Van Long, Ngo & Resende, Joana, 2015. "Network effects, aftermarkets and the Coase conjecture: A dynamic Markovian approach," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 84-96.
    4. Larry Karp & Thierry Paul, 2005. "Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 330-355, May.
    5. Luca Bossi & Vladimir Petkov, 2007. "Habits, Market Power, and Policy Selection," Working Papers 0702, University of Miami, Department of Economics.
    6. Driskill, Robert, 2001. "Durable goods oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 391-413, March.
    7. 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.
    8. 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.

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