Monopoly and crude oil extraction

Attention has been directed toward analyzing the impact of monopoly control on the utilization of depletable resources. Several theoretical works indicate that, under most circumstances approximating reality, the monopolist will overconserve resources relative to the competitive optimum. There does not seem to be general agreement on the degree of severity of the intertemporal bias caused by the existence of monopoly. This paper develops some quantitative evidence of the differences between competitive and monopolistic behavior. By comparing estimated production profiles of oil-producing states grouped according to their degree of market power, estimates of the extent to which relatively competitive and monopolistic output profiles differ are acquired. Results indicate that the monopoly type group exhibits a production profile which is initially lower, peaks later, and eventually exceeds the profile estimated in the competitive group.