Strategic resource dependence

R. Gerlagh, M. Liski

Research output: Contribution to journalArticleScientificpeer-review

24 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)699-727
JournalJournal of Economic Theory
Volume146
Issue number2
DOIs
Publication statusPublished - 2011

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