An oligopoly-fringe non-renewable resource game in the presence of a renewable substitute

Hassan Benchekroun, Gerard van der Meijden*, Cees Withagen

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

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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 languageEnglish
Pages (from-to)1-20
Number of pages20
JournalJournal of Economic Dynamics and Control
Volume105
Early online date30 May 2019
DOIs
Publication statusPublished - Aug 2019

Keywords

  • Limit pricing
  • Non-renewable resource
  • Oligopoly-fringe
  • Renewable substitute

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