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Temporary natural resource cartels

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  • Benchekroun, Hassan
  • Gaudet, Gerard
  • Van Long, Ngo

Abstract

We analyze the behavior of a nonrenewable resource cartel that anticipates being forced, at some date in the future, to break-up into an oligopolistic market in which its members will then have to compete as rivals. Under reasonable assumptions about the value function of the individual firms in the oligopolistic equilibrium that follows the break-up, we show that the cartel will then produce more over the same interval of time than it would if there were no threat of dissolution, and that its rate of extraction is a decreasing function of the cartel’s life; that there are circumstances under which the cartel will attach a negative marginal value to the resource stocks, in which case the rate of depletion will be increasing over time during the cartel phase; that, for a given date of dissolution, the equilibrium stocks allocated to the post-cartel phase will increase as a function of the total initial stocks, whereas those allocated to the cartel phase will increase at first, but begin decreasing beyond some level of the total initial stocks.
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  • Benchekroun, Hassan & Gaudet, Gerard & Van Long, Ngo, 2006. "Temporary natural resource cartels," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 663-674, November.
    • Handle: RePEc:eee:jeeman:v:52:y:2006:i:3:p:663-674
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    Citations

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    Cited by:

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    2. van der Ploeg, Frederick, 2018. "Political economy of dynamic resource wars," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 765-782.
    3. Colombo, Luca & Labrecciosa, Paola, 2018. "Consumer surplus-enhancing cooperation in a natural resource oligopoly," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 185-193.
    4. Frederick van der Ploeg, 2017. "Rapacious Oil Exploration in face of Regime Switches: Breakthrough Renewable Energy and Dynamic Resource Wars," Development Working Papers 415, Centro Studi Luca d'Agliano, University of Milano.
    5. Boyce, John R. & Vojtassak, Lucia, 2008. "An 'oil'igopoly theory of exploration," Resource and Energy Economics, Elsevier, vol. 30(3), pages 428-454, August.
    6. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    7. Frederick van der Ploeg & Aart de Zeeuw, 2018. "Climate Tipping and Economic Growth: Precautionary Capital and the Price of Carbon," Journal of the European Economic Association, European Economic Association, vol. 16(5), pages 1577-1617.
    8. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
    9. Wirl, Franz, 2008. "Resource extraction by cartels facing constraints on cooperation," Resource and Energy Economics, Elsevier, vol. 30(3), pages 409-427, August.

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    More about this item

    JEL classification:

    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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