Incomplete information and resource dependence

When should a buyer of an exhaustible resource move to a substitute if only the seller knows the exact size of the remaining resource stock? We characterize stationary dynamic signalling equilibrium of this Coasian bargaining problem, and find that adjustment delays in ending the relationship and the degree of asymmetric information shape the equilibrium outcome. The Coase conjecture —the informed agent takes all the surplus— arises when adjustment delays vanish. Under sufficient informational asymmetry, the model describes increasing supplies followed by a supply shock as an equilibrium phenomenon. The pattern arises from small sellers’ incentive to over-supply in order to postpone the buyer’s decision to end the relationship. JEL Classification: D4; D9; O33; Q40.