Therefore saudi arabia wants to maintain the price

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Unformatted text preview: ants production of its oil to be sustained for the long term and to discourage substitution. It has huge reserves, compared to its production and its production capacity. One can, therefore, consider scarcity (―Hotelling‖) rent to Saudi oil production to be negligible. Oil will be available in the future. But price must not be allowed to rise beyond a vaguely defined limit. Conversely, it is also in the interest of Saudi Arabia to receive a high price, to cover as much of its budget as it can and to support its welfare state. Therefore, Saudi Arabia wants to maintain the price within a band that it considers a reasonable trade-off among its objectives (Morse 2009). 61 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Empirics 62 Oil DDW 2012 1 2008 proves Saudi Arabia will restrict prices to prevent alternative energy shift Chakravorty, Professor and Canada Research Chair, University of Alberta, et al, 10 Ujjayant Chakravorty, Professor and Canada Research Chair, University of Alberta, et al., Andrew Leach, Michel Moreaux, 7-10, [“Would Hotelling Kill the Electric Car?,” The Department of Economics, The Institute for Public Economics, and the University of Alberta, www2.toulouse.inra.fr/lerna/travaux/cahiers2010/10.08.314.pdf] E. Liu The contention of the 2006 film ‘Who killed the electric car’ is that, among other factors, strategic action on the part of the oil companies to maintain low fuel prices led to the devaluing of the electric car and led to its demise.1The scenario does not seem so far fetched as, in the midst of increasing oil prices in the Summer of 2008, Saudi Arabia called an emergency summit to address issues including the possibility that continued high oil prices would lead to increased uptake of alternative energy sources and lead to a permanent residual demand shift, or so-called demand-destruction. While oil prices have declined significantly since mid-2008, the view that alternative energy source may threaten the rents of finite resource owners remains. In late 2009, OPEC stated that, “energy policies and behavioural changes are bound to have some impact on consumption and this will gradually feed into overall demand patterns.” 63 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Kills Alternatives and Other Producers 64 Oil DDW 2012 1 Saudi Arabia can flood the oil market – Kills investment in renewables and all other oil-producers Al-Saleh, senior research fellow at the Insead Innovation and Policy Initiative in Abu Dhabi, et al., 08 Yasser Al-Saleh, senior research fellow at the Insead Innovation and Policy Initiative in Abu Dhabi, et al., Paul Upham and Khaleel Malik, 10-08, [“Renewable Energy Scenarios for the Kingdom of Saudi Arabia,” Tyndall Centre for Climate Change Research, www.tyndall.ac.uk/sites/default/files/wp125.pdf] E. Liu In a world of abundant oil reserves, Saudi Arabia - as a major oil-producer with the greatest spare production capacity - could choose to maximise its oil production and perhaps further expand its operations in the Far East in order to achieve a maximum market share and ultimately become the world’s unsurpassed supplier. As a result of the adoption of a sustained ‘market flooding’ strategy, oil prices could gradually drop down to as low as $10 per bar...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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