Sequential Development and Exploitation of an Exhaustible Resource: Do Monopoly Rights Promote Conservation?

This paper explores the problem of sequential exploitation of exhaustible resources by a monopolist, when a setup cost must be incurred to access the next pool. Under certain circumstances, the monopolist will always follow a more conservationist path of extraction and delay the introduction of new resource pools compared to a social planner. However, with other forms of consumer demand, the monopolist may exhaust the resource more quickly, especially if many new options will follow. These results may apply especially to depletable resources like antibiotics or biotech products, for which significant research and development costs are required, followed by monopoly rights conferred by patents.