Horizontal agreements about the use of a natural resource

I study a class of agreements between product market rivals to restrict their usage of a natural resource. The natural resource serves as an input for production and can imperfectly be replaced by a basket of other resources. The class of permissible agreements includes various quantitative and pricing instruments that fall short of pure price fixing. Under baseline conditions, namely that firms and consumers do not take into account external effects, I characterize the types of restrictions that succeed in breaking the status quo and the types that do not. Agreements that break the status quo reduce the usage of the natural resource but induce firms to set higher prices in the product market. The effect on prices is what motivates firms to make the agreement. Firms prefer the type of restriction that requires as little reduction in usage of the natural resource as possible in order to induce a given price increase. Implications for competition policy are discussed.