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On Coase and Hotelling

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Author Info
Matti Liski
Juan-Pablo Montero
Abstract

It has been long recognized that an exhaustible-resource monopsonist faces a commitment problem similar to that of a durable-good monopolist. Indeed, Hörner and Kamien (2004) demonstrate that the two problems are formally equivalent under full commitment. We show that there is no such equivalence in the absence of commitment. The existence of a choke price at which the monopsonist adopts the substitute (backstop) supply divides the surplus between the buyer and the sellers in a way that is unique to the resource model. Sellers receive a surplus share independently of their cost heterogeneity; a result in sharp contrast with the durable-good monopoly logic. The resource buyer can distort the equilibrium through delayed purchases, but the Coase conjecture arises under extreme patience (zero discount rate).

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0903.

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Date of creation: Apr 2009
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Handle: RePEc:mee:wpaper:0903

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  1. Karp, Larry & Newbery, David M., 1993. "Intertemporal consistency issues in depletable resources," Handbook of Natural Resource and Energy Economics, in: A. V. Kneese† & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 3, chapter 19, pages 881-931 Elsevier. [Downloadable!] (restricted)
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  2. Bulow, Jeremy I, 1982. "Durable-Goods Monopolists," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 314-32, April. [Downloadable!] (restricted)
  3. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  4. R. Preston Mcafee & Thomas Wiseman, 2008. "Capacity Choice Counters the Coase Conjecture," Review of Economic Studies, Blackwell Publishing, vol. 75(1), pages 317-332, 01. [Downloadable!] (restricted)
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  5. Chakravorty, Ujjayant & Roumasset, James & Tse, Kinping, 1997. "Endogenous Substitution among Energy Resources and Global Warming," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1201-34, December.
  6. Karp, Larry, 1996. "Depreciation erodes the Coase Conjecture," European Economic Review, Elsevier, vol. 40(2), pages 473-490, February. [Downloadable!] (restricted)
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  7. Johannes Horner & Morton I. Kamien, 2004. "Coase and Hotelling: A Meeting of the Minds," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 718-723, June.
  8. Bagnoli, Mark & Salant, Stephen W & Swierzbinski, Joseph E, 1989. "Durable-Goods Monopoly with Discrete Demand," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1459-78, December. [Downloadable!] (restricted)
  9. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring. [Downloadable!] (restricted)
  10. Kahn, Charles M, 1986. "The Durable Goods Monopolist and Consistency with Increasing Costs," Econometrica, Econometric Society, vol. 54(2), pages 275-94, March. [Downloadable!] (restricted)
  11. Reyer Gerlagh & Matti Liski, 2008. "Strategic Resource Dependence," Working Papers 2008.72, Fondazione Eni Enrico Mattei. [Downloadable!]
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