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Two-Period Resource Duopoly with Endogenous Intertemporal Capacity Constraints

Author

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  • Berk, Istemi

    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

Abstract

This paper analyzes the strategic firm behavior within the context of a two-period resource duopoly model in which firms face endogenous intertemporal capacity constraints. Firms are allowed to invest in capacity in between two periods in order to increase their initial endowment of exhaustible resource stocks. Using this setup, we find that the equilibrium price weakly decreases over time. Moreover, asymmetric distribution of initial resource stocks leads to a significant change in equilibrium outcome, provided that firms do not have the same cost structure in capacity additions. It is also verified that if only one company is capable of investment in capacity, the market moves to a more concentrated structure in the second period.

Suggested Citation

  • Berk, Istemi, 2015. "Two-Period Resource Duopoly with Endogenous Intertemporal Capacity Constraints," EWI Working Papers 2014-13, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
  • Handle: RePEc:ris:ewikln:2014_013
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic Duopoly; Cournot Competition; Endogenous Intertemporal Capacity Constraints; Subgame Perfect Nash Equilibrium;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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