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Strategic resource dependence

Gerlagh,R.
; 
Liski,M.
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.
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2011
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Tilburg University Research Output Collection
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Gerlagh, R & Liski, M 2011, 'Strategic resource dependence', Journal of Economic Theory, vol. 146, no. 2, pp. 699-727. https://doi.org/10.1016/j.jet.2010.09.007
URI
https://hdl.handle.net/20.500.14602/55081
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