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Short run effects of bleaker prospects for oligopolistic producers of a non-renewable resource

Author Info

  • Kristine Grimsrud

    ()

  • Knut Einar Rosendahl
  • Halvor Briseid Storrøsten
  • Marina Tsygankova

    (Statistics Norway)

Abstract

In a non-renewable resource market with imperfect competition, the resource owners' supply is governed both by current demand and by the resource rent. New information regarding future market conditions will typically affect the resource rent and hence current supply. Bleaker prospects will tend to accelerate extraction. We show, however, that for resource owners with substantial resource stocks, a more pessimistic outlook may in fact slow down early extraction. The explanation is that for players with extensive resource stocks, the resource rent is limited and supply is more driven by current market considerations. As players with less resources accelerate their supply, it may be optimal for the large resource owners to cut back on their supply. We illustrate this in the case of the European gas market, finding that the shale gas revolution may lead to an accelerated supply by most gas producers, but a postponement of Russian gas extraction.

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Paper provided by Statistics Norway, Research Department in its series Discussion Papers with number 733.

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Date of creation: Jan 2013
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Handle: RePEc:ssb:dispap:733
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Keywords: Exhaustible Resource Extraction; Cournot Competition; Natural Gas.;

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Find related papers by JEL classification:
  • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
  • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
  • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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Cited by:

  1. Finn Roar Aune, Rolf Golombek , Arild Moe, Knut Einar Rosendahl and Hilde Hallre Le Tissier, 2015. "Liberalizing Russian Gas Markets - An Economic Analysis," The Energy Journal, International Association for Energy Economics, vol. 0(Adelman S).

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