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On oligopolistic markets for nonrenewable natural resources

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  • Lewis, Tracy R.
  • Schmalensee, Richard.

Abstract

Noncooperative oligopoly behavior in nonrenewable resource markets is analyzed under stationary conditions assuming perfect information. The existence of Cournot-Nash equilibria in output paths is established under standard cost and demand assumptions, and a number of comparative dynamic results are obtained. If all suppliers have the same costs, for instance, and total reserves are fixed, either increasing the number of suppliers or equalizing their reserve holdings causes more rapid resource use. If suppliers' costs differ, it is shown that equilibrium involves inefficient production; high-cost reserves may even be exhausted before low-cost reserves.
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Suggested Citation

  • Lewis, Tracy R. & Schmalensee, Richard., 1979. "On oligopolistic markets for nonrenewable natural resources," Working papers 1052-79., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  • Handle: RePEc:mit:sloanp:1952
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    File URL: http://hdl.handle.net/1721.1/1952
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    References listed on IDEAS

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    1. Glenn C. Loury, 1978. "The Optimal Exploitation of an Unknown Reserve," Review of Economic Studies, Oxford University Press, vol. 45(3), pages 621-636.
    2. 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.
    3. Robert S. Pindyck, 1977. "Cartel Pricing and the Structure of the World Bauxite Market," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 343-360, Autumn.
    4. James L. Sweeney, 1977. "Economics of Depletable Resources: Market Forces and Intertemporal Bias," Review of Economic Studies, Oxford University Press, vol. 44(1), pages 125-141.
    5. Roberts, John & Sonnenschein, Hugo, 1976. "On the existence of Cournot equilbrium without concave profit functions," Journal of Economic Theory, Elsevier, vol. 13(1), pages 112-117, August.
    6. Stiglitz, Joseph E, 1976. "Monopoly and the Rate of Extraction of Exhaustible Resources," American Economic Review, American Economic Association, vol. 66(4), pages 655-661, September.
    7. Milton C. Weinstein & Richard J. Zeckhauser, 1975. "The Optimal Consumption of Depletable Natural Resources," The Quarterly Journal of Economics, Oxford University Press, vol. 89(3), pages 371-392.
    8. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-1093, October.
    9. Rader, Trout, 1972. "Theory of Microeconomics," Elsevier Monographs, Elsevier, edition 1, number 9780125750509, August.
    10. Koji Okuguchi, 1973. "Quasi-Competitiveness and Cournot Oligopoly," Review of Economic Studies, Oxford University Press, vol. 40(1), pages 145-148.
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    HD28 .M414 no.1052-; 79;

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