On Capturing Rent from a Non-renewable Resource International Monopoly: Prices Versus Quantities

Abstract

In this paper we model the case of an international non-renewable resource monopolist as a dynamic game between a monopolist and n importing countries governments, and investigate whether a tariff on resource imports can be advantageous for consumers in importing countries. We analyse both the case of a price-setting monopolist and the case of a quantity-setting monopolist. We find that a tariff is advantageous for consumers, even when there is no commitment to the trade policy and importing countries do not coordinate their policies. Using a numerical example, we find that a tariff is more advantageous for the importing countries if the monopolist chooses the quantity instead of the price and that the optimal temporal path when the monopolist chooses the price is consistently below the optimal temporal path when the monopolist chooses the quantity for the entire period of exploitation of the resource. Nevertheless, the variation in total welfare between the two regimens is small.