Strategic Resource Extraction And Substitute Development
AbstractAbstract We analyze a dynamic game between a buyer and a seller of an exhaustible resource. The seller chooses resource supply; the buyer can pay a fixed cost to invent a perfect substitute for the resource at any time. In closed-loop equilibrium, the buyer adopts the substitute when the resource is exhausted. Investing makes the buyer worse off because it decreases resource supply, destroys his ability to derive surplus from the resource through delaying the investment cost incurrence, and causes a larger share of the resource stock to be sold at his reservation price. From the seller’s perspective, the buyer’s ability to develop a substitute is equivalent to an already available substitute with a higher marginal cost.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2013-014.
Date of creation: 2013
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exhaustible resource; substitute; innovation; closed-loop equilibrium;
Find related papers by JEL classification:
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-16 (All new papers)
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