Industry size and ‘destructive competition’ in cournot oligopoly models of exhaustible resource exploration and extraction

Abstract

In this paper, we show that requiring all firms to conduct non-negative levels of exploration restricts the number of firms in exhaustible resource industries. Thus exploration creates a natural barrier to the degree of competition in exhaustible resource industries. Relative to the competitive case, the oligopolist explores more and extracts more in the first period. Increasing the number of firms in the industry lowers the oligopolist's levels of exploration and extraction but increases the industry levels of exploration and extraction.