Dominant Firm Pricing Policy in a Market for an Exhaustible Resource
Volume: Volume 9, No. 2
Issue: Autumn 1978
Pages: pp. 385-395
Authors: Richard J. Gilbert
Title: Dominant Firm Pricing Policy in a Market for an Exhaustible Resource
Abstract: The paper describes a von Stackelberg model of pricing behavior by a dominant firm in a market for an exhaustible resource. The results obtained differ dramatically from those that characterize a pure monopoly. If the marginal production cost in the competitive fringe is constant, the optimal dominant firm price strategy is independent of its own costs and is determined by the characteristics of the fringe. In contrast, if the production cost of the fringe is constant only up to a capacity constraint, the cartel may maximize profits by acting as a classical limit-pricing firm.
JEL Classification
Microeconomics Theory of Firm and Industry under Imperfectly Competitive Market Structures (0226)
Natural Resources General (7210)