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Learning and price volatility in duopoly models of resource depletion

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  • Ellison, Martin
  • Scott, Andrew

Abstract

The combination of learning and depletion in non-renewable resource markets adds significant volatility to commodity prices. The market consists of a small number of suppliers who make depletion plans based on their perceptions of how sensitive price is to supply. Learning leads to changes in these perceptions and hence the revision of depletion plans, which can have a dramatic effect on market supply and price. Firstly, price trends upwards faster than the rate of time preference as the non-renewable resource approaches exhaustion. Secondly, there are frequent escape episodes in which price rises rapidly before gradually falling back. The striking volatility and nonstationarity in commodity prices that results has parallels in oil price data.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 60 (2013)
Issue (Month): 7 ()
Pages: 806-820

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Handle: RePEc:eee:moneco:v:60:y:2013:i:7:p:806-820

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Web page: http://www.elsevier.com/locate/inca/505566

Related research

Keywords: Commodity prices; Depletion; Escape dynamics; Learning; Non-renewable resources;

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Cited by:
  1. Batlome Janjgava & Sergey Slobodyan, 2011. "Duopoly Competition, Escape Dynamics and Non-cooperative Collusion," CERGE-EI Working Papers wp445, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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