On the profitability of production perturbations in a dynamic natural resource oligopoly

✍ Scribed by Hassan Benchekroun; Gérard Gaudet

• Book ID: 104293292
• Publisher: Elsevier Science
• Year: 2003
• Tongue: English
• Weight: 154 KB
• Volume: 27
• Category: Article
• ISSN: 0165-1889
• DOI: 10.1016/s0165-1889(02)00023-4

✦ Synopsis

Static oligopoly analysis predicts that if a single ÿrm in Cournot equilibrium were to be forced to marginally contract its production, its proÿts would fall. On the other hand, if all the ÿrms were simultaneously forced to reduce their production, thus moving the industry towards monopoly output, each ÿrm's proÿt would rise. We show that these very intuitive results may not hold in a dynamic oligopoly, such as a nonrenewable natural resource oligopoly, where the exogenous constraint would take the form of a contraction of the ÿrm's output path over some ÿxed interval of time: there are situations where a ÿrm will gain from being the lone ÿrm constrained in this way and cases where each ÿrm will lose if all the ÿrms in the industry are so constrained, thus exactly reversing the conclusions obtained from purely static analysis.