Monopoly and the Intertemporal Production of a Durable Extractable Resource

Marion B. Stewart

The Quarterly Journal of Economics, 1980, vol. 94, issue 1, 99-111

Abstract: In extractive industries producing a resource that does not quickly wear out, monopoly power has an important effect on the rate of production, and hence on the pattern of prices, over time. In many cases, a monopoly producer of a durable resource will rationally choose a high initial price, and lower that price over time; this contrasts dramatically with the strategy of a competitive extractive industry, which optimally increases price over time at the industry's discount rate, regardless of the durability of the resource. In the cases we study, it is found that a monopoly producer of a durable resource will be more conservation-minded than will a competitive industry, initially producing at a slower rate in order to keep early-period prices high.

Date: 1980
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