Benchekroun, H., G. van der Meijden and C. Withagen (2019). “An oligopoly-fringe non-renewable resource game in the presence of a renewable substitute,” Journal of Economic Dynamics and Control, 105: 1-20
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.