Abstract
This paper considers strategic use of R&D in the context of an exhaustible resource market, where the consuming countries control R&D and a cartel controls the resource. It is shown that R&D investments to develop a backstop technology can be used as a credible threat to induce a low price profile for the resource. The price path associated with the unique perfect equilibrium exhibits limit pricing: The backstop is eventually introduced but in a period before this event, the cartel keeps the price sufficiently low to make delayed investment the preferred alternative for the consuming nations.
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