Forward trading in exhaustible-resource oligopoly |
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Affiliation: | 1. Research Institute of Petroleum Exploration and Development, PetroChina, Beijing 100083, China;2. CNPC Key Laboratory for Basin Structure and Hydrocarbon Accumulation, Beijing 100083, China;3. CSIRO Earth Science and Resource Engineering, P.O. Box 1130, Bentley, WA 6102, Australia;4. CNPC Key Laboratory for Oil and Gas Reservoir, Beijing 100083, China |
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Abstract: | We analyze oligopolistic exhaustible-resource depletion when firms can trade forward contracts on deliveries – a market structure relevant for some resource markets (e.g., storable pollution permits, hydro-based power pools) – and find that trading forwards can have substantial implications for resource depletion. We show that when firms’ initial resource-stocks are the same, the subgame-perfect equilibrium path approaches the perfectly competitive path as firms trade forwards frequently. But when the initial stocks differ, firms can credibly escape part of the competitive pressure of forward contracting. It is a unique feature of the resource model that equilibrium contracting and the degree of competition depends on resource endowments. |
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Keywords: | Exhaustible resources Oligopoly Forward contracting |
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