Hotelling Rents in Hotelling Space: Product Differentiation in Exhaustible Resource Markets

Abstract

Using a Hotelling spatial model, this paper examines the interrelationship between resource rents in related exhaustible resource markets. In a product space context, we show that even if two exhaustible resources are not currently in the same market (e.g., coal and oil), differential scarcity will link their current scarcity rents. This applies analogously in geographic markets. Another result is that monopoly accelerates depletion of substitutes and may not affect time to depletion of the monopolized resource.