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Resource utilization in oligopolistic markets : the case of exhaustible resources

University of British Columbia

This thesis considers the utilization of an exhaustible resource in an oligopolistic market in which producers are assumed to behave noncooperatively. Within a game-theoretic framework, the amount of resource recovered by the industry is endogenized by allowing producers to undertake, prior to extraction, investment activities which alter the variable cost of resource recovery. The open-loop Cournot-Nash equilibrium is characterized in considerable detail, especially in the symmetric case in which property rights are identical across producers. In this case, it is shown that an increase in the number of producers in the industry (a) increases the ultimate amount: of resource recovered by the industry (b) increases the initial investment undertaken on each deposit (c) lowers the resource price, at least initially (d) raises the shadow price of the resource, initially (e) decreases the present value of industry profits, and (f) increases the present value of the total surplus generated in the Cournot-Nash equilibrium. When the property rights are asymmetric, it is shown that the output profile of the industry is inefficient from society's point of view: the same stream of resource output can be provided, in general, at lower investment cost and present value variable cost.

Text

2010-03-27

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http://hdl.handle.net/2429/22822

Economics

University of British Columbia

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