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Strategic resource dependence

  • Gerlagh, Reyer
  • Liski, Matti

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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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 2 (March)
Pages: 699-727

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:2:p:699-727
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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