Discussion Papers no. 733

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

In a non-renewable resource market with imperfect competition, the resource owners’ supply is governed both by current demand and by the resource rent.

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.

About the publication

Title

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

Authors

Kristine Grimsrud, Knut Einar Rosendahl, Halvor Briseid Storrøsten, Marina Tsygankova

Series and number

Discussion Papers no. 733

Publisher

Statistics Norway

Topic

Discussion Papers

ISSN

1892-753X

Number of pages

25

Language

Engelsk

About Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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