SLUGGISH DEMAND, PRICE EXPECTATIONS AND MONOPOLISTIC RESOURCE EXTRACTION

This paper integrates intertemporal decision making of consumers and a resource monopoly. This analysis accounts for another dynamic and traditionally omitted factor, namely sluggish demand. This is characteristic for many resource markets, e.g. for primary energy carriers. A Stackelberg differential game describes the interaction between the consumers and the producer. In particular, it will be shown, that the volatility of resource prices depends on the shape of the equilibrium demand curve and not on the type of consumer expectations; i.e. price volatility may happen even if consumers know this predatory strategy. Moreover, the monopolist charges higher prices compared with the static demand framework.