Abstract
In accordance with recent empirical evidence, we model the oil market as an oligopoly facing a fringe as well as competition from renewable resources. Within this framework we fully characterize, i.e., for all vectors of initial resource stocks, the equilibrium extraction paths of the fringe and the oligopolists. We show that (i) the sequence of extraction in equilibrium crucially depends on the oligopolists’ market power, (ii) there always exists a phase of simultaneous supply of the oligopolists and the fringe, (iii) the oligopolists pursue a limit-pricing strategy near the end of the extraction horizon, and (iv) an increase in the reserves of the fringe may lead to a decrease in their initial supply.
| Original language | English |
|---|---|
| Pages (from-to) | 1-20 |
| Number of pages | 20 |
| Journal | Journal of Economic Dynamics and Control |
| Volume | 105 |
| Early online date | 30 May 2019 |
| DOIs | |
| Publication status | Published - Aug 2019 |
Funding
The authors would like to thank Corrado Di Maria, Andrew Leach, Florian Leblanc, Rick van der Ploeg and participants at the SURED conference (Ascona, June 2018), the WCERE (Gothenburg, June 2018), the IRMBAM-2018 (Nice, July 2018) and the workshop on Cities and the Environment (Potsdam, July 2018) for their valuable comments. Hassan Benchekroun thanks the Fonds de recherche du Québec - Société et culture (FRQSC) and the Canadian Social Sciences and Humanities Research Council (SSHRC) for financial support. Cees Withagen and Gerard van der Meijden gratefully acknowledge financial support from FP7-IDEAS-ERC Grant No. 269788.☆ The authors would like to thank Corrado Di Maria, Andrew Leach, Florian Leblanc, Rick van der Ploeg and participants at the SURED conference (Ascona, June 2018), the WCERE (Gothenburg, June 2018), the IRMBAM-2018 (Nice, July 2018) and the workshop on Cities and the Environment (Potsdam, July 2018) for their valuable comments. Hassan Benchekroun thanks the Fonds de recherche du Québec - Société et culture ( FRQSC) and the Canadian Social Sciences and Humanities Research Council (SSHRC) for financial support. Cees Withagen and Gerard van der Meijden gratefully acknowledge financial support from FP7-IDEAS- ERC Grant No. 269788.
| Funders | Funder number |
|---|---|
| Fonds de Recherche du Québec-Société et Culture | |
| Seventh Framework Programme | 269788 |
| Social Sciences and Humanities Research Council of Canada | |
| European Research Council |
Keywords
- Limit pricing
- Non-renewable resource
- Oligopoly-fringe
- Renewable substitute