Temporary Natural Resource Cartels
Series/Report no.Cahier de recherche #2004-02
- nonrenewable natural resources
- [JEL:Q3] Agricultural and Natural Resource Economics; Environmental and Ecological Economics - Nonrenewable Resources and Conservation
- [JEL:L13] Industrial Organization - Market Structure, Firm Strategy, and Market Performance - Oligopoly and Other Imperfect Markets
- [JEL:Q3] Agriculture et économie des ressources naturelles - Ressources non-renouvelables et conservation
- [JEL:L13] Organisation Industrielle - Stratégie de l'entreprise, structure et performance du marché - Oligopoles et autres marchés imparfaits
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.
BENCHEKROUN, Hassan, GAUDET, Gérard et LONG, Ngo Van, «Temporary Natural Resource Cartels», Cahier de recherche #2004-02, Département de sciences économiques, Université de Montréal, 2004, 18 pages.