Monopoly Power Can Be Disadvantageous in the Extraction of a Durable Nonrenewable Resource.

The authors study a Markov equilibrium for the case where a monopolist extracts a nonrenewable resource which is converted to a durable good, which then depreciates at a constant rate. They show that, in a stationary, continuous time model (infinite horizon, infinitesimal period of commitment), monopoly power can be disadvantageous. Numerical experiments confirm that this can also occur in a finite horizon, discrete model. This result is compared with previous examples of disadvantageous market power, obtained using two-period models. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.