Strategic resource dependence

Reyer Gerlagh and Matti Liski ()

Journal of Economic Theory, 2011, vol. 146, issue 2, 699-727

Abstract: We consider a situation where an exhaustible-resource seller faces demand from a buyer who has a substitute but there is a time-to-build delay for the substitute. We find that in this simple framework the basic implications of the Hotelling model (1931) are reversed: over time the stock declines but supplies increase up to the point where the buyer decides to switch. Under such a threat of demand change, the supply does not reflect the current resource scarcity but it compensates the buyer for delaying the transition to the substitute. The analysis suggests a perspective on costs of oil dependence.

Keywords: Dynamic; bilateral; monopoly; Markov-perfect; equilibrium; Depletable; resources; Energy; Alternative; fuels; Oil; dependence (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (24)

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Working Paper: Strategic Resource Dependence (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:2:p:699-727

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