Short Run Effects of Bleaker Prospects for Oligopolistic Producers of a Non-Renewable Resource

33 Pages Posted: 5 Feb 2014

See all articles by Kristine Grimsrud

Kristine Grimsrud

University of New Mexico - Department of Economics

Knut Einar Rosendahl

Norwegian University of Life Sciences; Statistics Norway - Research Department

Halvor Briseid Storrosten

Statistics Norway

Marina Tsygankova

Thomson Reuters Point Carbon

Date Written: January 30, 2014

Abstract

In a non-renewable resource market with imperfect competition, both the resource rent and current prices influence a large resource owner’s optimal supply. New information regarding future market conditions that affect the resource rent will consequently impact current supply. Bleaker demand prospects tend to accelerate resource extraction. A more pessimistic outlook for future demand may, however, slow down the early resource extraction of producers with sufficiently large resource stocks and thus more limited resource rent, because the supply from these producers is driven more by current market considerations than by changes in the resource rent. As producers with relatively smaller resource stocks accelerate their supply in response to bleaker demand prospects, producers with sufficiently large resource stocks will reduce their current supply. A numerical model of the European gas market illustrates that the effect of the shale gas revolution is an accelerated supply by most gas producers, but a reduced supply by Russia who loses market shares even before the additional gas enters the market.

Keywords: resource extraction, Cournot competition, European gas market

JEL Classification: Q310, Q330, Q420

Suggested Citation

Grimsrud, Kristine and Rosendahl, Knut Einar and Storrosten, Halvor Briseid and Tsygankova, Marina, Short Run Effects of Bleaker Prospects for Oligopolistic Producers of a Non-Renewable Resource (January 30, 2014). CESifo Working Paper Series No. 4579. Available at SSRN: https://ssrn.com/abstract=2390595

Kristine Grimsrud

University of New Mexico - Department of Economics ( email )

1915 Roma NE/Economics Building
Albuquerque, NM 87131
United States

Knut Einar Rosendahl (Contact Author)

Norwegian University of Life Sciences ( email )

PO Box 5033
NO-1432 Aas
Norway
+47 64966117 (Phone)

Statistics Norway - Research Department ( email )

Kongens Gt. 6
PO Box 8131 Dep
N-0033 Oslo
Norway
+47 21094954 (Phone)
+47 21094963 (Fax)

Halvor Briseid Storrosten

Statistics Norway ( email )

N-0033 Oslo
Norway

Marina Tsygankova

Thomson Reuters Point Carbon ( email )

Dronning Eufemiasgate 16
Oslo, 0191
Norway

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