Dynamic rents

Static, persistent rents exist if there are barriers for entry to markets and extra supply. On the other hand, if rents increase this may generate more supply if there are opportunities for suppliers to enter markets. In that case rents will attract new entrepreneurs and extra investments. This in turn, will sooner or later reduce rents and therefore we may call these dynamic rents.

In addition to attracting investments, rents may incentivize buyers to reduce their consumption. An example is the extreme increase of gas prices in 2022, which incentivized both business and consumers to reduce their consumption.

While it is perfectly clear that governments were right to assist the population to be able to pay basic energy needs, it is also clear that it makes sense to reduce the use of energy which is above the basic needs. Rents will incentivize business and consumers to economize on scarce energy, and this makes good sense.

The sharp increase of the prices of gas and electricity also triggered government and entrepreneurs to find other suppliers and alternatives for the need for energy, and the increase in price caused those (more expensive) alternatives to meet the required Return On Investment: with lower prices those investments would be impossible.

To summarize: if markets are open for new suppliers and new products dynamic rents will have positive effects because they trigger investments and incentivize business and consumers to reduce consumption of scarce resources.