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

Nancy Olewiler

Working Paper from Economics Department, Queen's University

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.

Pages: 38
Date: 1981
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:421

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