On comparing monopoly and competition in exhaustible resource exploitation

Abstract

It is widely believed that exhaustible resource monopolies do not enjoy as much market power as standard non-resource monopolies, and may even produce in a socially optimal way. We argue that this paradoxical result arises from an inappropriate comparison methodology. When similar assumptions are applied to the resource, and the conventional cases, we show that the resource monopoly behaves as expected, i.e., restricts supply.