Strategic Resource Dependence

35 Pages Posted: 16 Sep 2008

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Matti Liski

Aalto University - Department of Economics

Date Written: September 11, 2008

Abstract

We consider a situation where an exhaustible-resource seller faces demand from a buyer who has a perfect substitute but there is a time-to-build delay for the substitute. We that find 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 true current resource scarcity but leads to increased future scarcity, felt during the transition to the substitute supplies. The analysis suggests a perspective on costs of oil dependence.

Keywords: Dynamic Bilateral Monopoly, Markov-Perfect Equilibrium, Depletable Resources, Energy, Alternative Fuels, Oil Dependence

JEL Classification: D4, D9, O33, Q40

Suggested Citation

Gerlagh, Reyer and Liski, Matti, Strategic Resource Dependence (September 11, 2008). FEEM Working Paper No. 72.2008. Available at SSRN: https://ssrn.com/abstract=1266704 or http://dx.doi.org/10.2139/ssrn.1266704

Reyer Gerlagh (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Matti Liski

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland
+358-9-43138384 (Phone)
+358-9-43138735 (Fax)

HOME PAGE: http://www.hkkk.fi/~liski

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