Facebook LinkedIn Twitter

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Pricing Policies of an Oil Cartel with Expectation of Substitute Producers

The proposition that the net price in a competitive market and the net marginal revenue in a monopolistic market rise at the rate of interest was first demonstrated by Hotelling (1931) for a non-durable exhaustible resource. However, Levhari and Liviatan (1977) and Fisher (1981) have shown that Hotelling's r-percent rule is not valid when extraction costs rise with cumulative production. This r-percent rule also applies to a perfectly durable resource when the resource is produced in a competitive market. It does not apply in the case of a monopolistic market.

Purchase ( $25 )

Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Geopolitics of Energy

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy

Keywords: Oil cartel, Pricing policy, Hotelling, Monopolistic market, Competition

DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No1-10

Published in Volume 9, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.