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Capacity Constraints and Destructive Competition in the Extraction of Non-Renewable Natural Resources

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  • Nancy Olewiler

Abstract

Capacity and minimum efficient scale constraints are examined in the extraction of a non-renewable natural resource. These constraints can lead to destructive competition. If this occurs, a perfect foresight equilibrium will not exist because the set of intertemporal shadow prices for the resource will not be sustainable by competitive behaviour of firms. Each firm's extraction path is affected and there are regions where the market price of the resource is constant. Possible time paths of momentary equilibria are derived when firms expectations are incorrect. Examples are policy implications are presented.

Suggested Citation

  • Nancy Olewiler, 1981. "Capacity Constraints and Destructive Competition in the Extraction of Non-Renewable Natural Resources," Working Paper 421, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:421
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    Cited by:

    1. Eswaran, Mukesh & Lewis, Tracy R & Heaps, Terry, 1983. "On the Nonexistence of Market Equilibria in Exhaustible Resource Markets with Decreasing Costs," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 154-167, February.

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