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Long-Term Bilateral Monopoly: The Case of an Exhaustible Resource

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  • Tracy Lewis
  • Robin Lindsey
  • Roger Ware

Abstract

We construct a model of long-term bilateral competition between the supplier of an exhaustible resource and a consuming country capable of producing a perfect substitute for the resource. The technology for producing the substitute is known, and the strategy of the consuming country is to choose an investment program for installing the substitute. We derive equilibrium configurations of investment and extraction for the case of linear demand under three scenarios: (1) the resource supplier is a von Stackelberg leader; (2) the consuming country is a von Stackelberg leader; and (3) buyers and sellers of the resource engage each other period by period. A comparison of these cases reveals incentives for long-term commitment on the part of one or both parties and also suggests that there may be gains from strategic intervention into resource markets by governments of consuming nations.

Suggested Citation

  • Tracy Lewis & Robin Lindsey & Roger Ware, 1986. "Long-Term Bilateral Monopoly: The Case of an Exhaustible Resource," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 89-104, Spring.
  • Handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:89-104
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    Cited by:

    1. Giulietti, Monica & Sicca, Renato, 1999. "The liberalisation of the internal market for electricity: what choices for Italy?," Utilities Policy, Elsevier, vol. 8(3), pages 173-182, September.
    2. Santiago Rubio, 2011. "On Capturing Rent from a Non-renewable Resource International Monopoly: Prices Versus Quantities," Dynamic Games and Applications, Springer, vol. 1(4), pages 558-580, December.
    3. Reyer Gerlagh & Matti Liski, 2014. "Cake-Eating with Private Information," CESifo Working Paper Series 5050, CESifo Group Munich.
    4. Gerlagh, Reyer & Liski, Matti, 2011. "Strategic resource dependence," Journal of Economic Theory, Elsevier, vol. 146(2), pages 699-727, March.
    5. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
    6. Mattoo, Aaditya, 2001. "Can no competition policy be better than some competition policy?," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 55-77, January.

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