Journal of Political Economy Vol. 112 No. 3 2004
Coase and Hotelling: A Meeting of the Minds
Abstract
In this paper we tie together the two literatures of durable goods monopoly and exhaustible resource pricing. We show that the intertemporal no‐arbitrage condition that arises if the durable good monopolist seller can commit to a price path mirrors the intertemporal no‐arbitrage condition if the monopsonist buyer of an exhaustible resource can commit to a price path. The intuition is that the durable good monopolist initially announces high future prices to get high‐valuation buyers to buy early and subsequently lowers the price to attract additional buyers. On the other hand, the monopsonist buyer of the exhaustible resource initially announces low future prices to encourage sellers to supply their units early and subsequently, as the stock of the resource declines, raises the price to call forth additional supply. As the period of commitment shrinks to zero, the durable good’s price drops to its marginal cost and the exhaustible resource’s price jumps to its choke level, all in a twinkling of the eye, as Coase hypothesized.
- DOI
- 10.1086/383103
- Volume
- 112
- Issue
- 3
- Pages
- 718-723
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref