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Expectations About Change in Market Structure and Natural Resource Extraction

Tobias F. Rötheli
Journal of Economics
Vol. 62, No. 2 (1995), pp. 203-214
Published by: Springer
Stable URL: http://www.jstor.org/stable/41794463
Page Count: 12
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Expectations About Change in Market Structure and Natural Resource Extraction
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Abstract

This article investigates how the extraction path for an exhaustible resource is altered when there is a chance of the market form changing in the future. Under perfect competition the possibility of the market being cartelized induces producers to choose a more conservationist extraction policy. This holds as long as cartelization is either followed by increased or decreased extraction. That is, as long as there is a motive for cartelization (i.e., a change in extraction pattern increases the value of the ore) anticipation of a change in market structure will raise the price. Hence, the possibility of cartelization raises the price even when a cartel chooses a lower price than under perfect competition.

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