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Oil Market Power in General Equilibrium

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  • Marz, Waldemar
  • Pfeiffer, Johannes

Abstract

We analyze monopoly power in a market for a complementary fossil resource like oil in a two country/two period model with international trade in general equilibrium. Focusing on the complex interplay of capital and resource market, we elaborate how these effects feed back into the resource monopolist's extraction decision. His level of knowledge about the economic structure thereby plays a key role. The accumulation of own capital assets over time, together with a recognized influence of extraction on the interest rate, can lead the monopolist to accelerate or postpone extraction. Considering the interaction of resource market and global capital accumulation poses an incentive for the monopolist to accelerate extraction and to exploit the importers' increased resource addiction in the future. The conservationist bias of resource market power can be increased, dampened or reversed through the general equilibrium effects.

Suggested Citation

  • Marz, Waldemar & Pfeiffer, Johannes, 2016. "Oil Market Power in General Equilibrium," Annual Conference 2016 (Augsburg): Demographic Change 145876, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145876
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    References listed on IDEAS

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    1. van der Meijden, Gerard & van der Ploeg, Frederick & Withagen, Cees, 2015. "International capital markets, oil producers and the Green Paradox," European Economic Review, Elsevier, vol. 76(C), pages 275-297.
    2. John Hassler & Per Krusell & Conny Olovsson, 2010. "Oil Monopoly and the Climate," American Economic Review, American Economic Association, vol. 100(2), pages 460-464, May.
    3. 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.
    4. Fischer, Carolyn & Laxminarayan, Ramanan, 2005. "Sequential development and exploitation of an exhaustible resource: do monopoly rights promote conservation?," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 500-515, May.
    5. Calvo, Guillermo & Findlay, Ronald, 1978. "On the optimal acquisition of foreign capital through investment of oil export revenues," Journal of International Economics, Elsevier, vol. 8(4), pages 513-524, November.
    6. Arye L. Hillman & Ngo Van Long, 1985. "Monopolistic Recycling of Oil Revenue and Intertemporal Bias in Oil Depletion and Trade," The Quarterly Journal of Economics, Oxford University Press, vol. 100(3), pages 597-624.
    7. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137-137.
    8. 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.
    9. van der Meijden, Gerard & van der Ploeg, Frederick & Withagen, Cees, 2015. "International capital markets, oil producers and the Green Paradox," European Economic Review, Elsevier, vol. 76(C), pages 275-297.
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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