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Forward Trading in Exhaustible-Resource Oligopoly

  • Juan-Pablo Montero

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • Matti Liski

We analyze oligopolistic exhaustible-resource depletion when firms can trade forward contracts on deliveries, a market structure prevalent in many resource commodity markets. We find that this organization of trade has substantial implications for resource depletion. As firms’ interactions become infinitely frequent, resource stocks become fully contracted and the symmetric oligopolistic equilibrium converges to the perfectly competitive Hotelling (1931) outcome. Asymmetries in stock holdings allow firms to partially escape the procompetitive effect of contracting: a large stock provides commitment to leave a fraction of the stock uncontracted. In contrast, a small stock provides commitment to sell early, during the most profitable part of the equilibrium.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 341.

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Date of creation: 2008
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Handle: RePEc:ioe:doctra:341
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