Limit pricing and the (in)effectiveness of the carbon tax

Sá, Saraly Andrade de; Daubanes, Julien

doi:10.1016/j.jpubeco.2016.04.006

Cited by 37 publications

(11 citation statements)

References 45 publications

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“…These countries are excluded unless otherwise indicated. 2 Saudi Arabia Oil Minister at the time Mr Al-Naimi cited by Jared Anderson, Energy Quote of the Day: 'We Would Lose on Both Market Share and Price', http://breakingenergy.com, 18 December, 2014…”

Section: Introductionmentioning

confidence: 99%

OPEC vs US shale: Analyzing the shift to a market-share strategy

Behar

Ritz

2017

Energy Economics

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In November 2014, OPEC announced a new strategy geared towards improving its market share. Oil-market analysts interpreted this as an attempt to squeeze higher-cost producers, notably US shale oil, out of the market. Over the next year, crude oil prices crashed, with large repercussions for the global economy. We present a simple equilibrium model that explains the fundamental market factors that can rationalize such a "regime switch" by OPEC: (i) the growth of US shale oil production; (ii) the slowdown of global oil demand; (iii) reduced cohesiveness of the OPEC cartel; and (iv) production ramp-ups in other non-OPEC countries; while (v) reductions in US shale costs act against these factors. We show that these qualitative predictions are broadly consistent with oil market developments during 2014-15. The model is calibrated to oil market data; it predicts accommodation up to 2014 and a market-share strategy thereafter, and explains large oil-price swings as well as realistically high levels of OPEC output.

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Section: Introductionmentioning

confidence: 99%

OPEC vs US shale: Analyzing the shift to a market-share strategy

Behar

Ritz

2017

Energy Economics

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“…This paper examines the incentive to merge in nonrenewable resource industries. This sector constitutes a large proportion of GDP in many economies, 1 and also has a long history of mergers and acquisitions (M&A) activity, starting with Standard Oil's acquisitions in the early 1900's. The volume of M&A has been consistently higher in the exhaustible resource sector relative to many others.…”

Section: Introductionmentioning

confidence: 99%

“…Moreover, the merged entity must be signi…cant enough for the merger to be pro…table. The basic intuition driving this result is that, in the case of strategic 1 For example, exhaustible resource sectors, including oil, gas and minerals and mining, accounted for about 10% of Canadian GDP annually during 2008-2012, according to Statistics Canada. 2 The global value of M&A in the oil sector rose from $88.99 billion in 1997 (representing about 25% of global income from the oil sector in 1997) to $372 billion in 2007 (representing about 22% of global income from the oil sector in 2007) (see Kumar, 2012, for further details).…”

Section: Introductionmentioning

confidence: 99%

Mergers in nonrenewable resource oligopolies and environmental policies

Benchekroun

Breton

Chaudhuri

2019

European Economic Review

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We study the pro…tability of horizontal mergers in nonrenewable resource industries, which account for a large proportion of merger activities worldwide. Each …rm owns a private stock of the resource and uses open-loop strategies when choosing its extraction path. We analytically show that even a small merger (merger of 2 …rms) is always pro…table when the resource stock owned by each …rm is small enough. In the case where pollution is generated by the industry's activity, we show that an environmental policy that increases the …rms'production cost or reduces their selling price can deter a merger. This speeds up the industry's extraction and thereby causes emissions to occur earlier than under a laissez-faire scenario.

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“…Gilbert and Goldman (1978) and Hoel (1983) show that any threat of entry en-courages the monopolist to charge a higher initial price than without the threat. More recently, Andrade de Sá and Daubanes (2016) have argued that, with constant marginal extraction costs, limit pricing will occur throughout if demand for energy is inelastic.…”

Section: Introductionmentioning

confidence: 99%

Limit pricing, climate policies, and imperfect substitution

Meijden

Withagen

2019

Resource and Energy Economics

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The effects of climate policies are often studied under perfect competition and constant marginal extraction costs. In this paper, we allow for monopolistic fossil fuel supply and more general cost functions, which, in the presence of perfectly substitutable renewables, gives rise to limit-pricing behavior. Four phases of supply may exist in equilibrium: sole supply of fossil fuels below the limit price, sole supply of fossil fuels at the limit price, simultaneous supply of fossil fuels and renewables at the limit price, and sole supply of renewables at the limit price. The consequences of climate policies for initial extraction depend on the initial phase: in case of sole supply of fossil fuels at the limit price, a renewables subsidy increases initial extraction, whereas a carbon tax leaves initial extraction unaffected. With simultaneous supply at the limit price or with sole supply of fossil fuels below the limit price, a renewables subsidy and a carbon tax lower initial extraction. Both policy instruments decrease cumulative extraction. If fossil fuels and renewables are imperfect but good substitutes, the monopolist will exhibit 'limit-pricing resembling' behavior, by keeping the effective price of fossil close to that of renewables for considerable time.

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Limit pricing and the (in)effectiveness of the carbon tax

Cited by 37 publications

References 45 publications

OPEC vs US shale: Analyzing the shift to a market-share strategy

OPEC vs US shale: Analyzing the shift to a market-share strategy

Mergers in nonrenewable resource oligopolies and environmental policies

Limit pricing, climate policies, and imperfect substitution

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